These platforms can also hold the employing company’s stock, certainly useful as part of an employment contract, and provision of Isas and pension wrappers allow these assets to be held in the most tax-efficient manner. These platforms will enable employees to diversify their company shareholding, reducing the concentration risk of investment.
The pension freedoms announced in the March Budget mean pensions are back in vogue. Investors will increasingly want to seek out advice to ensure they have a financial plan in place that will make the most of these new-found freedoms when the time comes. Advisers can help to educate people about the need to increase their personal levels of savings and investments, particularly in relation to retirement, long-term care and inheritance planning. The reforms provide an ideal reason to engage with those who have become disenfranchised with pensions in the past.
Isas still have a prominent and complementary role to play alongside a pension plan but the new reforms have opened up a much wider range of options and offer the flexibility missing from the past. There is an opportunity there for those advisers who wish to take it.
Peter Smith is head of distribution engagement at Tisa
Key points
The raft of announcements on the new pension freedoms is introducing a level of flexibility that could see pensions taking over from Isas
At the same time as Isas were growing in popularity, so pensions seemed to be in decline
The pension freedoms announced in March 2014 mean pensions are back in vogue.
| Current rules | |
| Isas | Pensions |
| Simpler to understand and administer | Tax benefits of pensions over ISAs are relatively small for a basic-rate taxpayer |
| Good if you want to access savings before age 55 | 25% tax-free lump sum available from age 55 |
| On death assets in an ISA do form part of the estate but no IHT if assets fall below £325,000 threshold (£650,000 for couples) | Attract 55% ‘death tax’ unless you die before 75 and have left your pension untouched. |
| Advantageous for higher and top-rate taxpayers who are able to receive 40% or 45%tax relief on contributions but could pay 20% as a lower rate taxpayer when drawing income. | |
| After ‘death tax’ is scrapped | |
| Pensions will become a more serious competitor to ISAs for those who want to bequeath their savings. However, there are suggestions that the government could offset the ‘death tax’ abolition by scrapping higher-rate tax relief, possibly replacing it with a flat rate of 30%. This would make pensions less appealing for higher-rate taxpayers. |
