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Deciding whether to invest within an NISA or a pension can be quite a challenge. Recent changes that have been made to these investments so it is which way is the best way to go?

So the right place to save for your retirement can be a difficult to decide.

Starting with pensions, the rules will allow access from age 55 and over to take income from your pension whenever they want, and how much you wish to take. Additionally, you can still withdraw the 25% tax free allowance.

The New ISA rules now allow you to invest up to £15,000 each and now individuals can invest as much cash into their ISA as they want up to the maximum limit. Previously the Cash ISA limit was restricted. The NISA now allows transfer from Stocks & Shares to Cash, enabling you to move freely from asset backed (such as equities) to deposit based. This is a big change and we welcome it.

So why should I be investing my hard earned money into a pension?

Pension contributions benefit from tax relief. For example, if you make monthly pension contributions of £500 a month and you are a basic rate tax payer, you will gain an extra £125 per month from the tax relief you receive from HMRC (that is tax coming back to you), taking your gross monthly contribution to £625. Higher and Additional rate tax payers can claim a further 20% or 25% through completion of Self Assessment.

When you start to withdraw income from your pension, 25% of this can be taken out as a tax free lump sum. You can spend this money as feel free, maybe repay a mortgage, buy a car or use it as tax free income.

If you die before age 75, your pension can be passed on to your spouse free from IHT tax. This is quite an overlooked advantage of pensions.

Now looking at investing an NISA.

Unfortunately there is no tax relief on money invested in a NISA, however there is no Capital Gains Tax on any of the profits.

Great news here, all withdrawals from an NISA are completely tax free.

You can withdraw funds from a NISA at any age, whereas the minimum age for accessing your pension benefits is currently 55. Some people do not like this restriction.

In the event of your death, your NISA benefits will be able to be passed on to your spouse in the form of an additional NISA allowance.

My view is that if you have enough money to do both, then you should. Pension’s savings is for long term retirement and as you cannot easily access, means that it is a disciplined way to save. On the other hand a NISA is great for medium term saving and you can access your money at any time with any restrictions.

To get the best value for your investments and savings, we recommended that seek professional advice from a qualified financial adviser.

Contact Martin Dodd on 01902 742221 or email him at martin.dodd@miadvice.co.uk if you would like talk about money issues.

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