I'm self-employed - which is best for me, a pension or an ISA?

Anna | London| 25/03/2019 | 0

  • Private Pension
  • Stocks and Shares ISA

Anna's question in full

I am self employed (40) with no private pension, earning £50,000 a year. I have savings and can make a lump sum investment. I know nothing about Stocks or Shares. What is the best way forward for pension and tax reduction? Desperate Anna

Holly Mackay's Response

Hi Anna,

  • The first thing you need to think about with no investments and no pension, is making sure that you use the tax efficient structures out there for investing, namely ISAs and pensions.
  • The second question you need to think about is time frames.

You don't mention how long this money is going to invested for. If it's just generally to do the right thing and start setting aside a nest egg for retirement, then you're looking at time frames of about 20 years+.

With these time frames, do make sure that you're considering an appropriate amount of investment risk. The longer you invest for, the more risky you can be. As you're more likely to weather the markets over a long time.

  • The third thing is to choose where to put your ISA and pension.

Our Best Buys tables are able to help you.

If you know nothing, then my suggestion to you would be to start off at least with what we call a Multi Asset Fund.

These are like the ready meals of the investment world, where you get an expert to pick and blend all of the investments for you. And it's the lowest touch way to get a sensible, decent mixed bag of investments.

Finally, have a think about how you split the money between ISAs and pensions. Pensions - you get nice tax relief from the government, which builds up for lump sums like yours. But it is locked away until you are at least 55 - rising to 57 in 2028.

ISAs are immediately accessible, but you don't get the additional tax relief from the government. So think about the amount of money you can squirrel away for the longer term, and allocate that to a pension. And the ISAs will be an tax-free savings vehicle which is more easily accessible.

Hope that helps!



Just be aware...

We are not regulated to give personal financial advice - This isn’t full-fat regulated financial advice. Boring Money is a publisher and not regulated by the FCA. 

This means we can't help with specific personal circumstances or recommend specific investment products. It also basically means that if we say something daft, you have no recourse to come back and complain.

We’re only allowed to give you a steer or share an opinion or tell you the facts - That said, we promise that our answer to you is an independent unbiased perspective with no commercial gain to make. If you need regulated financial advice, you can find a good adviser via sites such as Unbiased & Vouchedfor.

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Holly Mackay

Founder and MD of Boring Money, Holly Mackay has been working in the investments space since 1998. She read Modern Languages at Oxford, with a special focus on Mediaeval French which was deeply interesting and arguably utterly useless.

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