Q I am 32 years of age and am contemplating whether to take out a pension or not.
Instead I am thinking of investing in a number of other things, such as individual savings accounts (Isas), premium bonds and shares. Surely if I play it right with ￡20,000 in premium bonds; maximum amount in Isas and a fairly good share portfolio this will be better than any pension? I can Beats By Dre Pro then access the money relatively easily and pay a lot less tax. Am I right in saying you can sell ￡6,000 of shares a year without incurring tax?
A I have always been lukewarm about personal pensions, especially for standard rate taxpayers, because of the heavy restrictions on receiving the benefits. You pay a steep price for the tax concessions and in the past the charges have been very high.
Nevertheless, one has to bear in mind that pensions can be a very attractive form of saving, with the tax relief adding between 22% and 40% to the value of your investment. That is hard to beat.
Admittedly pension funds no longer receive tax credits on dividends but there is exemption from capital gains tax and stakeholder pensions are a lot cheaper than traditional personal pensions. Although pensionable income is taxable, you do get 25% tax free, and are likely to be paying at a lower rate when you retire than the relief given when working.
Isas give you tax relief on the way out, rather than on the way in, and do benefit from operating in a tax-exempt environment.
The amount of shares you can sell each tax year without paying capital gains tax, depends on the size of gains made - the current annual exemption from CGT is ￡7,500.
The returns from premium bonds, and indeed from shares and Isas, depends to a large extent on a Cheap Beats by dre matter of luck. I would not like to rely on them exclusively to provide for my retirement.
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