Pensions are often the first port of call when saving for retirement - and for good reason. They offer one of the most tax-efficient ways to build a retirement pot.
But if you’re looking for other ways to save, an ISA can be a great complement to a pension. And with rising allowances over the last few years, investors have sheltered a fair amount from the taxman in ISAs. They could then make a decent UK tax-free income from their investments.
One of our clients, Mr Sims from Kent, explains his benefits of using ISAs for retirement and how he’s built an income free from UK tax in his ISA.
Please remember, tax rules can change and the value of any benefits will depend on your individual circumstances. All investments and income can fall as well as rise in value and you could get back less than you invest. This tax year’s ISA allowance is £20,000.
When considering your options, make sure that you don’t miss out on valuable employer contributions to a pension scheme.
Mr Sims from Kent
How has your investment style changed over the years?
Capital growth is no longer my priority. Of course, it’s better that your investments increase in value rather than fall, but I’m much more interested in yield and income. The change to investing in income wasn’t an overnight thing – I gradually moved my investments from growth to income over a period of time. This process probably started about 10 years before retirement. This was the time when I began to concentrate on how much income the portfolio would need to generate in my retirement.
Investing in ISAs is also good because it still encourages me to achieve a certain level of savings every year. I’ve always put as much as I can into ISAs and I currently put the full amount in each year for both my wife and myself.
Do you have any other sources of retirement income?
I’ve got various pension funds from previous jobs. We’ve also got a small amount invested in property. So along with the ISA, these are my three main sources of income and provide me with a bit of diversification. I tend to regard both my portfolio and my wife’s portfolio as one. This enables me to keep tax liabilities as low as possible and the income being tax free from an ISA also makes that easier.
The value of investments can go down in value as well as up, so you could get back less than you invest. It is therefore important that you understand the risks and commitments. This website is not personal advice based on your circumstances. So you can make informed decisions for yourself we aim to provide you with the best information, best service and best prices. If you are unsure about the suitability of an investment please contact us for advice.