Pensions Generate £7,400 More Than ISAs on Average, Standard Life Analysis Shows
Brits are earning an average of £7,400 more from their pension pots compared to Individual Savings Accounts (ISAs), according to a recent analysis by Standard Life. This finding comes despite upcoming inheritance tax (IHT) reforms announced by Chancellor Rachel Reeves, which are set to take effect in April 2027 as part of the 2025 Autumn Budget.
Investment Returns Highlight Pension Advantage
With a four percent annual return, a £20,000 ISA investment would grow to £29,605 over a decade. In contrast, a pension pot receiving the same initial cash boost would reach £37,006 for basic-rate taxpayers. For higher-rate taxpayers, the accumulation would be even greater, totaling £49,341 over the same period.
Neil Jones, a tax and estate planning specialist at Standard Life, commented: "Including pensions within the scope of inheritance tax represents one of the most significant changes to estate planning in decades. While the impact will primarily be felt by the wealthiest estates, there is a risk that pensions begin to be viewed less favourably by the wider saving population who are unlikely to be affected."
Widespread ISA Usage Amid Tax Efficiency
Despite the pension performance edge, approximately 21 million UK adults are utilising tax-efficient ISA accounts. This figure represents around four in 10 Brits who are now using ISAs to shelter their money from taxation.
The data also reveals significant savings disparities across age groups:
- The over-65s hold an average of over £64,000 in ISA accounts, contributing to a total of £900 billion within ISA accounts overall.
- The under-25s typically have around £8,300 saved in ISAs.
In the 2022/2023 tax year, approximately 2.5 million savers maximised their £20,000 annual ISA allowance, highlighting the continued popularity of these savings vehicles.
Broader Implications for Savers
The analysis underscores the ongoing debate between pension and ISA savings strategies, particularly in light of impending tax changes. While pensions currently offer higher returns for many, the accessibility and tax benefits of ISAs remain attractive to a broad segment of the population.
As inheritance tax reforms approach, financial experts urge savers to review their estate planning and consider how these changes might affect long-term financial goals. The shift could influence future savings behaviors, especially among those weighing the trade-offs between immediate tax relief and potential inheritance liabilities.
