From: John Boyle 
Newsgroups: uk.finance
Subject: Re: From Drawdown to ISA
Date: Wed, 24 Jan 2007 21:19:18 +0000

In message <51ptq8F1l8up7U1@mid.individual.net>, Andy Pandy 
 writes
>> My typo apart, I am not saying you would pay more tax, merely pointing
>> out that the tax paid on the resulting income quickly exceeds the tax
>> saved on the contribution. I only mention this so as to broaden peoples
>> minds away form the salesmens' expression 'A pension is tax free!',
>> because it isnt. As life expectancy increases the amount of tax paid on
>> the income is getting larger and larger.
>
>Only because the pre-tax investment has grown (ie the tax you *would 
>have* paid much
>earlier has grown).

Thats right.
>
>> If some funds were in an ISA
>> then of course, subject to you managing the fund so as to last as long
>> as you need it to, there is no tax payable AND capital (albeit
>> potentially reducing) is protected.
>
>But how do you predict when you're going to die? An annuity is 
>basically insurance
>against living too long, if you don't buy one then you can't guarantee 
>not running
>out of cash.

I agree. I am not arguing against all pensions, just warning that there 
is merit in having other forms of post retirement planning.
>
>> >> >Pensions allow you to more than double the money you put in almost
>> >> >instantaenously (subject to a few conditions).
>> >>
>> >> But heavily taxed and controlled on the way out.. which ISAs arent.
>> >
>> >Heavily? Usually far less heavily than it would have been taxed on the
>> >way into the
>> >ISA.
>>
>> You are fallling into the salesman's trap. Dont forget the tax is on the
>> way out,
>
>Of course. But with 25% available tax free and the remainder often 
>taxed at a lower
>rate, the tax advantages can be very significant.

I note you say 'at the lower rate'.

What about the lack of flexibility and the loss of capital. In real life 
most people spend less the older they get (inflation apart). If they are 
lucky enough to have income in excess of £20k-£25k in retirement then 
they neednt worry about care home fees and only a small proportion go 
there anyway. IN general, people spend a lot in the early years of 
retirement, and rightly so.

If the base income is protected by an annuity the excess is far more 
accessable with ISAs. in retirement an often forgotten benefit is that 
funds previously invested in equities can switch to fixed interest and 
regain the tax free element of the interest which can then be paid as 
quasi income without prejudice to age allowance.. This is just an 
example of the extra flexibility having some funds in an ISA can 
provide.
-- 
John Boyle