I am 48 with a lump sum to invest, is it better to invest a lump sum to my company pension and/or an ISA?

10 September 2021

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Question by Donna

I am 48 with a lump sum to invest, is it better to invest a lump sum to my company pension and/or an ISA?


Answered by Matt Angell

Hi Donna,

Firstly you have to think would you like access to this lump sum prior to the minimum retirement age which is currently age 55 and changing to 57 in 2028.

Let's start with pension first, there are many advantages of investing the lump sum into your pension:

1) 20% tax relief will be added at source to your contribution and if a higher rate taxpayer an additional 20% can be claimed via self-assessment.

2) If anything were to happen to you prior to age 75 any money within your pension with being payable to your nominated beneficiary tax-free, post 75 it will be added to the beneficiary's income and taxed at their marginal rate.

3) Money within your pension is not included in your estate for inheritance tax purposes.

However, the amount that you can add to your pension is 100% of your overall salary or £40,000 per tax year, there are possibilities to add more but that will depend on your overall earnings and being an active member of your pension scheme.

ISA

Do you have one currently and if considering stocks and shares ISA then this could be considered as a good option as it allows immediate access when needed and tax-free. However again need to consider that you can only place £20,000 per tax year into an ISA but could use a partner's allowance too if the lump sum is bigger than £20,000. If thinking of a cash ISA currently the rates are very low and unfortunately this does mean people's capital is being eroded by inflation and does normally have a lock-in period to receive the rate quoted so something you will need to consider if your current ISA is a Cash ISA.

I think overall the most important consideration needs to be the following:

1) Whether needed to be Accessed - then it would be an ISA

2) Timeframe of investing - Longer-term then both fit the bill

3) Have a good think about your objectives for the money and how that can work towards a goal in your life.

Overall it's certainly something that is debated a lot with clients and having a mix of both tends to work well but it is different from person to person.

Answered by

Matt Angell

Founder & Financial Planner

I am the founder of Creative Lifestyle Planning, an independent financial planning firm that works with many families across the UK. Matt specialises in helping families to answer those all important questions they have on their mind and helping many clients gain a clearer, simply understanding of when and how to they can retire.