If you're saving for retirement, just how are you going about it? A pension will probably be the first port of call, but research from Fidelity Worldwide Investment has revealed that a growing number of people are using ISAs, too.
The figures show that investing in an ISA is a popular savings route for retirement among those in their 30s and 40s, with 43% of those surveyed planning to use their tax-free savings as a stepping stone towards funding their retirement.
However, this preference for ISA savings means that some are putting all their eggs in one basket; while 28% will use their ISA investments alongside their personal or workplace pension savings, 15% won't save into a pension at all and plan to solely rely on the proceeds from their ISA.
Some of the main reasons for this are ISAs being tax-free (53%), the flexibility to access their money prior to retirement (42%) and because they are simple and easy to understand (35%), but while saving into an ISA can be a great way to build up supplementary funds for retirement, it shouldn't always be used as the sole option.
"ISAs rank highly among those in their 30s and 40s, who value the advantages of an ISA to help them make the most out of their long-term savings," said Maike Currie, associate investment director at Fidelity Worldwide Investment. "However, while it is encouraging that this generation want to put aside money for their retirement in a tax efficient way, those who dismiss pensions for this purpose are missing out on advantages that the ISA doesn't have."
The biggest advantage of the workplace pension is the employer contribution. An ISA may offer complete tax efficiency, but you don't get anyone else putting money into your fund, so it's all down to you. A workplace pension is different – employers are required to add to your pension fund, too, which could help boost your pension savings far more than if you were going solo.
So, while you can definitely use an ISA to help fund your retirement, it perhaps shouldn't be the only solution. Rather than relying solely on this kind of account – be it cash or a stocks & shares version for those who don't mind a bit of extra risk – it may be worth considering how an ISA could work alongside your pension savings, allowing you to take a more diverse approach and potentially build up a bigger retirement fund.
Find out more about stocks & shares ISAs
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