How can ISAs help my retirement planning?

Lady in front of computer - ISA help my retirement planning

With ISA limits on the rise, you can save more and benefit from the generous tax treatment – gains are free of Income Tax and Capital Gains Tax - and ISA income does not have to be declared on your tax return. With the £5,000 Dividend Allowance being reduced to £2,000 next year, there is a further reason to ensure that you make the most of ISA allowances. 

Making the most of allowances

Over recent years, the total allowance for making pension contributions has been significantly reduced while ISA allowances have increased.

Tax year

Pension contribution allowance

ISA allowance


































*Complex rules cover the 2015/16 as a result of the Government forcing the alignment of all ‘pension input periods’ to tax years

**From 2016/17 onwards higher earners face a tapering of their annual allowance

When the ‘Freedom & Choice’ pension reforms were introduced in 2015 a reduced annual allowance was introduced for those who made use of the new flexibility to draw taxable income from their pension.  If you draw taxable income via flexi access drawdown or a taxable lump sum your annual allowance is reduced to £4,000.

How valuable can your ISA savings be?

If you save the maximum ISA investment each year (currently £20,000) on a monthly basis, then after 10 years your investment, based on 5% annual growth, would be worth over £260,000. The same contributions over a 20 year term would grow your ISA pot to just shy of £700,000 – and remember all of the proceeds can be withdrawn tax free.

Use the Lifetime ISA (LISA) to stretch your investments further

From April 2017, Lifetime ISA allows you to invest up to £4,000 each year and receive a 25% Government bonus. The Lifetime ISA can be used as part of your total £20,000 ISA allowance so you can invest £16,000 in other ISA investments.

Who can invest in the Lifetime ISA?

LISA is open to anyone resident in the UK between 18-39. You can invest in a LISA until age 50. The Government offer a 25% bonus of up to £1,000 each year – but this bonus will be removed if you do not use the money for a first time property purchase or draw benefits before age 60, so your intentions for the LISA need to be clear at outset. You will also face a 5% exit penalty for drawing benefits early.

Actions to consider

If you have used up your pension allowance or have a reduced pension allowance, you can use ISAs for additional retirement saving.  

If you have used your ISA allowance for this tax year already, don’t forget that all residents in the UK over 18 have an ISA allowance and children under 16 also have an ISA limit of £4,128.

Your employer may offer workplace savings as well as access to a workplace pension, so make sure you are not missing out on employer benefits.

Our Consultants can review your existing financial plans and help you to review ISA plans so that you make the most of ISA opportunities and assess whether LISA can help you get more from your savings.



This article is for information only, based on our understanding of legislation and HM Revenue & Customs practice as at February 2017 and is not to be taken as Financial Advice. Origen are not tax specialists and should you have any concerns with regards to your personal tax situation, we would recommend seeking advice of an accountant.  CA1225 Exp 04/18



[ Date Posted: 18/04/2017 13:58:05 ]