Stocks and Shares ISAs, a Bonus to a Pension Fund?

 By: Richard Teahon
Many people have heard of the term ISA which is an acronym for Individual Savings Account. They were welcomed when they were introduced as they offer tax free savings up to a point. There is another type of ISA however, which never gained as much media attention as the cash ISA and that is the stocks and shares ISA.

The stocks and shares ISA was designed for investment purposes and they possess some favourable tax rules. They are:

Dividends are not subject to additional tax

Capital Gains are not taxed

Bonds interest is not taxed

Income, capital gains, or trades are not considered taxable income so they do not have to be reported to HMRC.

From a retirement point of view the favourable tax rules of stocks and shares ISAs benefit people aged over 65 or over with incomes around the •£22,900 mark as they will not lose any personal allowances as they would under other systems.

Potentially this can give a boost to the pension scheme which many will welcome, given the nature of pensions which often depends on a favourable stock market for a favourable fund. Though it is clear that the stocks and shares ISA can be a good second source of income in the twilight years, they are like many investments, prone to several factors which can affect the profitability of the return. As like many commercials quote, the value of shares can go down as well as up.

Nonetheless, the adage of not putting all your eggs in one basket has plenty of justification in the world of finance. If all the money goes into the pension pot and the pot is not so big come retirement day, a frugal and unhappy life ensues. Should the money be divided between the pension and a stocks and shares ISA, then the chances of an unhappy life are offset somewhat.

In many respects knowing where to invest money is a sacred art. A little like horse racing but without the running commentary from start to finish.

When choosing to invest many opt for a financial advisor or institution to act on their behalf. On the surface this seems like a sound decision - they are the professionals they know what they are doing. This is true up to a point, but remember that many decisions can and should be made by the investor, and this has been recognised by some financial companies that feature investment ISAs as part of their product range. They are often particularly sought after as their commission rates tend to be lower too.

If you are interested in an investment ISA, it could be worth investing in a company that believes it does not have to make all the decisions.
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