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Should I save into an ISA or my pension? I'm currently 62.

25 October 2021

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Question by Paul

I have taken early retirement and am using a drawdown until my state and private pensions kick in. I am currently self employed doing a couple of small gardening and driving jobs earning about £12k per year. What is my best option to reduce any tax? Should I save into a pension or is it better to put this money into an ISA. My drawdown takes me above the £12,570 tax threshold so I am paying tax on my self-employed jobs. Currently I am 62 and due state pension at 66. Thanks


Answered by Joshua Gerstler

Hi Paul,

Before you contribute into a pension again, you need to make sure you do not exceed the Annual Allowance.

As you have started to drawdown your pension, it is likely that you have triggered the Money Purchase Annual Allowance.

This means that you cannot contribute more than £4,000 gross per year into a pension.

If you have money available to contribute to your pension, and the main objective is reducing tax, perhaps you will be better off not withdrawing this excess money from your pension and therefore not paying the tax in the first place.

I hope that helps.

Feel free to get in touch.

Josh

Answered by

Joshua Gerstler

Chartered Financial Planner

I have been working in Financial Services for over 16 years. I started out at Deloitte where I trained and qualified as a Chartered Accountant before moving to Financial Advice/Planning at The Orchard Practice in 2011.