Author Topic: How should I divide my income between pension and ISA? (UK)  (Read 2070 times)


  • Walrus Stache
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How should I divide my income between pension and ISA? (UK)
« on: September 23, 2014, 03:30:46 PM »
I'm 23 and just starting out as a freelancer with only moderate earning prospects (although I do love my job!). My husband is doing a postgraduate degree which will get him a modestly paid job for life, often with a house attached. I haven't worked out a precise long term goal yet (my husband definitely wants to keep working forever barring illness but I'd like some degree of FI at some point) but whatever it is, saving lots is good. (Children not currently ever planned.)

I'm not sure where best to invest, though. I understand that both pensions and ISAs are tax free, but while it seems like the government gives me free money to put it in a pension, I obviously cannot withdraw it until I am WAY past the age when I would at least like to transition to working part time. But time is money and if I am going to invest in a pension I should do it while I am young, right?

At the moment, I put 50/month into a SIPP (token amount, started when I was 19, but reconsidering proper amount now I am earning) and any other savings (pretty ad hoc at present - we are living off my husband's stipend and saving my very erratic income) goes into a stocks and shares ISA.

1. Do I actually get more money in the pension or does it just feel like I do?
2. Is it worth investing in the pension at all when I could theoretically live off investment returns in much the same way?
3. How much of my income should go to long term (pension) and how much to medium term (ISA)?


  • Stubble
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Re: How should I divide my income between pension and ISA? (UK)
« Reply #1 on: September 23, 2014, 08:03:54 PM »
I'd be really interested to see answers to this. I've just realised it has to be both in order to retire early. My current plan is to calculate fi date and then the gap between that and when i can access pension. I imagine for us it'll be around 8 years (not super early i know). at current expenses that'd be around 130,000. So that's my target total for the isa which i'll run down until pension age. Then everything else in the pension, contributing to both from the get go, not waiting until isa is funded to start pension. But this is a relatively new plan so let's see what anyone else says! Good luck.
« Last Edit: September 23, 2014, 08:05:46 PM by kyanamerinas »


  • 5 O'Clock Shadow
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Re: How should I divide my income between pension and ISA? (UK)
« Reply #2 on: December 12, 2014, 02:01:35 AM »
It depends what your plans are, you can't touch your SIPP until you are 55 so if you are planning on retiring early thats a big chunk of cash you dont have access to. BUT that being said if you dont use a SIPP then you are giving away 20% (or 40%) free money from the government, and the compound interest on that 20% also.

My plan is to put just enough money into a SIPP to be able to take out a tax free amount at 55 (currently 10.5k, but will likely be closer to 15k by the time I hit 55). Then the rest goes into an ISA as the profit from that is tax free and you can take it prior to hitting 55. I also plan on taking the 25% tax free amount out of my SIPP and putting that back into my ISA.