Saving enough to ensure a comfortable retirement has been an issue for many lately, especially as more company pension funds warn that they may face a shortfall in future years. So, any savings account that allows interest to accumulate without being taxed is to be welcomed, especially if the saver is a higher rate tax payer.
In the government’s latest move to encourage people nearer to retirement age to save more, anyone born on or before 5 April 1960 now qualifies to save an extra £1500 per year in a cash ISA than previously allowed. That limit changed on 6 October 2009 and now means that a total of £5100 per tax year – equivalent to £425 per month spread over 12 months – can now be invested into a cash ISA. However, from 6 April 2010 all ages will be eligible for the increased limits so those who qualify now should make the most of their increased allowances.
There is also another type of ISA – the Investment ISA – in which investors born on or before 5 April 1960 can currently pay up to £10,200 per year, or up to £5100 if they also intend in investing the maximum allowable amount of £5,100 in a cash ISA. Returns on investment ISAs are also free from any personal liability to income tax. Additionally, they are also free from capital gains tax, thus making it an extremely attractive investment option.
Individual Savings Accounts (ISAs) were introduced by the government in 1999 to encourage more Britons to save by offering tax-free benefits. For those under 50 the annual limit for investing in ISAs is currently set at £7200 per year; a maximum of £3600 of which can be invested in a cash ISA. Alternatively the entire allowable amount can be ploughed into an investment ISA. However, if any withdrawals are made the amounts invested cannot be topped up.
In a move to encourage older people to save for retirement from 6 October 2009 the government increased the limits that can be saved for those aged 50 and above for a limited time only. This incentive comes on the back of news that the pensions gap between public and private sectors is growing at an ‘alarming’ rate. In the space of one year the number of people contributing to private pension schemes dropped by more than 100,000. As a result there are now only 2.6 million workers contributing to private pensions schemes against a total of almost 5.4 million members of public sector schemes, membership of which leapt by over 200,000 during 2008 and 2009.
However, as the public sector is financed by taxpayers many believe that the pensions promised for many currently working public sector workers may be undeliverable. Therefore, as in the case of private pension contributors, individuals paying into public sector pensions are being encouraged by experts to also make additional provision for their retirement future. Paying into cash or investment ISAs certainly shouldn’t replace contributions to a recognised pension scheme, but it will help spread the risk.