Are pension Isas a good idea?

Pensions and Isas both offer savers tax-efficient ways to save, but in slightly different ways. So, how will a 'pensions Isa' work? Merryn Somerset Webb explains.

Hoping for a break from changes to pensions regulation? Too bad it looks like more are on the way. At his last budget, Chancellor George Osborne said that (more) "radical change" was possible, change that might make a pension more like an individual savings account (Isa). Pensions and Isas both offer savers tax-efficient ways to save. But they do so slightly differently.

With an Isa you put in taxed income. It compounds tax-free (no tax on dividends or capital gains) and you withdraw it tax-free. It is taxed, then exempt. With a pension you put in tax-free income. It compounds tax-free, but you pay tax as and when you withdraw the money. It is exempt, then taxed. So the idea of a "pension Isa" is to switch the system so you put in taxed money and take it out tax-free perhaps with a government top-up along the way.

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Merryn Somerset Webb

Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).

After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times

Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast -  but still writes for Moneyweek monthly. 

Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.