ISA Nice Idea
You can save for retirement in a number of ways. The traditional route is via a pension scheme, but you could also use an ISA.
Savers aged under 40 can open a Lifetime ISA and contribute up to £4,000 per year, which attracts a 25% bonus from the Government. This bonus is withdrawn if the savings are accessed other than to be used as a deposit for the saver’s first home, on diagnosis of a terminal illness, or from age 60 onwards.
The Lifetime ISA savings are counted as part of the annual ISA allowance of £20,000 per tax year. This allowance can’t be carried over to a future tax year, so you need to use it or lose it.
ISA savings are not taxed when they are withdrawn, but they don’t attract tax relief on the way into the account.
Pension scheme savings are taxed when they are withdrawn, with an exception for the first 25% cash lump sum taken. However, contributions into a registered pension fund will attract tax relief at your highest tax rate, subject to the cap imposed by your annual allowance.
This annual allowance is nominally set at £40,000, which covers pension contributions made by you and by your employer on your behalf. Any annual allowance not used can be carried forward for up to three years.
If your income is over £110,000, and adding the pension contributions made by you and your employer takes that total to over £150,000, your annual allowance is reduced by £1 for every £2 over that threshold, down to a minimum of £10,000.
Your annual allowance is also reduced, to exactly £4,000, if you have ever accessed your taxable pension savings built up in a money purchase (defined contribution) pension scheme. This is to prevent you from drawing funds from your pension scheme and then putting significant money into the same or another pension scheme, with additional tax relief.

An unused amount of the £4,000 money purchase annual allowance can’t be carried forward to future tax years.
ACTION POINT: Review your pension saving plans before 6 April 2020.

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