Should You Save for Retirement in a Stocks & Shares ISA?

Please note this blog post was published over 12 months ago and so may not include the most up-to-date information, for example where regulation around investing has changed.

Should You Save for Retirement in a Stocks & Shares ISA?

When you’re investing for your future, it’s vital that you get as much for your money as possible. That’s one reason why tax-free savings accounts like ISAs and Pensions are so popular in the UK. By avoiding income and capital gains tax, more of your money stays invested and so you have the potential for greater growth.

Over the long term, savers like you need their money to grow to a level that will produce a comfortable income in retirement. According to our ongoing Tackling the Savings Gap research, the average Briton wants an annual retirement income of around £23,000, however they are only on course to have enough to produce a £6,000 annual income.

That’s a gap of £17,000 per year, or the difference between retiring with a total pot of £460,000 and £120,000. While it’s clear to us that Britons aren’t saving enough, we also believe that some aren’t making the most of what they can invest.

By choosing a tax-efficient savings product, such as an ISA or Pension, you give yourself the potential to grow your retirement fund by more than if you invest in a standard savings account or non-tax-efficient investment account.

Stocks & Shares ISA or Pension?

Whether you choose an ISA or a Pension (or a combination) is up to you, but our research suggests ISAs are the more popular choice. Of the 2,000 consumers we polled in our Tackling the Savings Gap survey:

  • 59% pay the same or more into their ISA than their Pension
  • 64% want to be able to access their savings at any time
  • Only 7% are happy for their money to be locked away until retirement

We believe that the regulation around Pensions makes them less attractive than ISAs for saving – including retirement saving. With a Pension, you not only relinquish access to your money for many years, potential benefits like the 25% tax-free lump sum are subject to future change and meddling by the government.

Our research also highlighted that 78% of Britons are saving for retirement, a figure that increased 23% since our previous survey. While that’s good news, it’s essential that you save in the right tax-efficient product for you.

Pensions often seem like an easy option, especially with the recent introduction of automatic enrolment, but they are not right for everyone. You need to decide whether the tax benefits of a Pension outweigh the restriction on accessing your own savings when you need to.

If you’re saving for retirement, you can shelter £20,000 this tax year from the taxman. So, if you were to use up your full allowance each year for 30 years, you’d invest a total of £600,000 – that’s without taking into account any growth in the markets or the potential for the annual allowance to rise over time.

Our own True Potential Investments Stocks & Shares ISA has no initial fee, no admin fee and nothing payable to True Potential Investments for transfers. You can open an account with £1 and choose from a range of risk-based investment solutions, including the True Potential Managed Portfolio Series.

With investing, your capital is at risk. Investments can fluctuate in value and you may get back less than you invest. Past performance is not a guide to future performance. Tax rules can change at any time. This blog is not personal financial advice.

Personal Finance