From: "Andy Pandy" 
Newsgroups: uk.finance
Subject: Re: From Drawdown to ISA
Date: Wed, 24 Jan 2007 22:06:58 -0000


"John Boyle"  wrote in message
news:hrUUPxCW18tFFwg+@johnboyle1.demon.co.uk...
> >> >> 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'.

No - 'often taxed at a 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.

Right - so the 25% tax free lump sum can provide extra for the earlier years.  For a
HRT payer this would work out to 41.7% of the equivalent ISA fund assuming everything
else was equal.  Also a non index linked annuity can skew greater income towards the
earlier years.

> 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.

Yup. But the extra flexibility costs.

--
Andy