As a retiree with spare cash, how can I invest outside of my pension?
20 July 2021
Question by Wilson
Hi, I'm 66, been retired 4 years, living on savings and now UK Pension. I retired when I returned to the UK and so am not familliar with ISAs and SIPPs. When I look to join up with Fidelity they ask if I want a SIPP or ISA - Ooops fallen at the first hurdle. I am not looking for a pension as such, more somewhere I can invest some cash from. Can you please give me a steer. All the Best and Stay Safe...Wilson
Answered by Boring Money
What wrapper to use for your investments can be different depending on your circumstances. Between the tax wrappers of pensions and ISAs, the benefits come down to tax treatment as you put the money in, and as you draw it out. For both pensions and ISAs, the investments held within the “pots” are not subject to tax.
As you are now retired, some of the benefits of using a pension wrapper reduce: although you would still receive tax relief on the money you put in, you are limited to how much you can put into a pension by your earnings (and pension income doesn’t count). I have assumed you don’t have any earned income now - but you can still put in £2,880 a year, up to the age of 75, which is then grossed up to £3,600. As you draw the money out, you can take 25% tax free, but the rest is taxed at your marginal rate…so if you are a higher rate tax payer, it will be at the higher rate.
The amount you put into an ISA is currently a maximum of £20,000 each tax year. You don’t get anything added to it as it goes in, but it is not taxed as you take it out. Money above the annual subscriptions could simply be held in a general investment account (GIA), where there are no tax wrapper benefits.
For the GIA, ISA and SIPP the choices of underlying investments on the Fidelity platform should be the same.