- Before you turn 55, Isas are typically more suitable for medium-term financial goals
- At a later age, Isas come to the rescue when you max out on your pension allowances or start drawing from your pots
- But keep in mind that Isas will count towards your inheritance tax threshold, unlike pensions
Individual savings accounts (Isas) and pensions are both key for tax-efficient financial planning. With the capital gains and dividends allowances dropping as of this April, the importance of tax wrappers is set to increase even further, and people who have the financial capacity to contribute to both up to the respective limits should certainly consider doing so.
But with the Isa allowance at £20,00 a year and the annual contribution limit for pensions currently at £40,000 (due to increase to £60,000 from April as a result of Jeremy Hunt's Spring Budget), for many it will be a matter of choosing which to prioritise. This largely depends on your financial goals.