Four million people aged 55 to 64 have ISAs worth an average of just over £40,000, it has emerged, with UK households urged to switch.
Warning for millions aged 55 to 64 who have money held in an ISA
A warning has been issued for millions of people with cash stashed away in ISAs. Four million people aged 55 to 64 have ISAs worth an average of just over £40,000, it has emerged, with UK households urged to switch.
While ISAs are popular because money can be withdrawn at any time, pensions come with generous tax relief. NFU Mutual said a higher rate taxpayer could effectively collect up to 41.6% more by putting cash into a pension than an ISA.
Sean McCann, Chartered Financial Planner at the firm, said: “Unless you’re about to retire, pensions can seem like a bit of a dull subject – but if you’re in your fifties or older, they can offer a whole new way of thinking about investment.
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“Once you reach 55 you can take money from your pension either as lump sums, income or both.
“This means they can offer an attractive alternative to ISAs if you’re looking to build up funds for the future.
“Latest figures show 3.9 million people aged between 55 and 64 hold ISAs with an average value of £40,945 – but many of them could be better off topping up their pension and claiming the tax relief.
“The tax boost you get when you put money into a pension can make a huge difference to returns.”
Mr McCann warned: “Although currently any money left in your pensions is normally free from Inheritance Tax, this is set to change from April 2027, with unspent funds set to be included in the inheritance tax calculation, bringing them into line with the Inheritance tax treatment of ISAs.
“If you die before 75, in most cases, the benefits from pensions can be paid free of Income Tax, although there are limits if paid as a lump sum.
“If you die after 75 your beneficiaries will be taxed on the money paid out to them after any inheritance due has been paid.’’