Pensions still beat ISAs for retirement saving
In the long running debate of pensions vs. individual savings accounts, it seems ISAs are still losing out.
Company pensions are seen as one of the best ways to save for retirement, and are almost four times more popular than ISAs, according to the National Association of Pension Funds (NAPF).
Almost half (44%) of all employees think a company pension is the best method of saving for the future, and four out of 10 people see pensions as the most important employee benefit.
This shows an increase from last year, when 35% agreed that company pensions were the best way to save.
The figure is also more than twice the number of people who chose property as the best savings vehicle. The NAPF survey polled 984 individuals in September.
Joanne Segars, NAPF chief executive, says sluggish property growth and weak interest rates have helped raise pension awareness.
But she explains that the UK is facing a crisis in saving for old age and only a third of people are confident their pension will be enough to live on after retirement.
"The erosion of confidence in pensions is a real concern. We need a simpler state pension that provides a solid foundation of basic retirement income, which lifts people off means-testing to ensure people keep what they save. That would be a major step forward in restoring confidence in pensions," she says.
From October 2012, the roll out of the National Employment Savings Trust (NEST) means up to eight million people will start saving into a pension for the first time.
All employees earning at least £7,475 will be automatically enrolled into a government pension plan unless their company already offers a scheme.
Although the findings show people are less keen on saving for retirement through an ISA, Mel Kenny, chartered financial planner at financial advisers Radcliffe & Newlands, says an ISA is a good option for younger savings and could be used to save for a property deposit or rainy day savings.
Patrick Connolly, head of communications at financial advisers AWD Chase de Vere, says the findings from this report are positive and show more people are recognising the importance of pensions but also realising that they need to save more for a comfortable standard of living in retirement.
He advises getting a projection, if you do have a company pension, to work out how much you’ll have when you retire and if possible set up a second, private pension to increase your savings.
"For the vast majority of people the best way to save for the long term is through a combination of pensions and ISAs. Pensions provide initial tax benefits but are not flexible, whereas ISAs can still provide some tax advantages but are far more flexible if you need to get your hands on your money," he adds.
The National Employment Savings Trust
NEST is a government organisation that aims to provide a simple and low-cost pension scheme designed to give its members an easy way of building up retirement savings. You have one NEST retirement pot for life, whether you change jobs, work for more than one employer at the same time, or leave employment. A NEST scheme won’t allow transfers in and out. From 2012, all employees will be obliged to join workplace pension schemes unless they actively opt out and NEST will be the default fund for those employers who do not create comparable alternative arrangements. It will be phased in from 2012 and all employers will be required to contribute 3% by 2017.
Invidivual Savings Accounts were introduced on 6 April 1999 to replace personal equity plans (PEPs) and tax-exempt special savings accounts (TESSAs) with one plan that covered both stockmarket and savings products, the returns from which are tax-exempt. The ISA is not in itself an investment product. Rather, it’s a tax-free “wrapper” in which you place investments and savings up to a specified annual allowance where the returns (capital growth, dividends, interest) are tax-exempt (you don’t have to declare ISAs and their contents on your tax return). However, any dividends are taxed within the investment, and that can’t be reclaimed.