While pensions are central to retirement planning, they are not the only way to save and invest

In Episode 11 of the Retire Well with Wealth of Advice podcast, Chartered Financial Planners Joe and Matthew explore the most common non-pension investment options, including ISAs, General Investment Accounts (GIAs), and investment bonds, highlighting their benefits, limitations, and tax considerations.

‍

‍

Understanding Non-Pension Investment Options

‍

Individual Savings Accounts (ISAs)

ISAs remain one of the most popular ways to save in the UK due to their tax-free growth and income.

Key points about ISAs:

• Allowance: For 2024/25, the annual ISA allowance is £20,000, which can be split across cash ISAs, Stocks & Shares ISAs, or Innovative Finance ISAs.
• Historical context: Cash ISA allowances were equalised in 2014/15.
• Additional permitted subscriptions (APS): Allows further contributions under certain conditions.

ISAs provide a straightforward, tax-efficient way to build savings outside of your pension.

ISA success stories: Some people have really maximised their ISA savings over time. For example, there are reports of individuals holding over £11 million in ISAs, which is even bigger than some of the largest pension pots.

‍

‍

General Investment Accounts (GIAs)

Once you’ve used your full ISA allowance, a General Investment Account (GIA) is the next most common option for investing outside a pension. GIAs offer flexibility because there are no contribution limits, and you can invest in a wide range of assets including stocks, funds, bonds, and more.

However, this flexibility comes with tax implications you need to be aware of:

Dividend Tax

• For 2024/25, the tax-free dividend allowance is £500.
• Any dividends above this are taxed at the following rates:
  
  • Basic rate taxpayers: 8.75%
  • Higher rate taxpayers: 33.75%
  • Additional rate taxpayers: 39.35%
• Dividends from shares or funds can generate a steady income stream, but it’s important to track them carefully to avoid unexpected tax bills.

Capital Gains Tax (CGT)

• The annual CGT allowance for 2024/25 is £3,000.
• Any profits above this amount are subject to tax:
  
  • 18% for basic rate taxpayers
  • 24% for higher or additional rate taxpayers
• Losses can be offset against gains to reduce your tax liability, but you need to report this in your tax return.

Key Considerations

• GIAs are flexible, but unlike ISAs, there’s no tax-free growth.
• Withdrawals or gains don’t have limits, so they can be accessed at any time, making GIAs a good choice for mid- to long-term planning or bridging the gap before retirement.
• Proper tax planning is crucial, especially if you hold high-dividend or high-growth investments, to avoid losing a significant portion of your returns to tax.

By understanding the rules and allowances, a GIA can be a powerful complement to your pension and ISA savings, giving you control and flexibility over your investment strategy.

GIAs are flexible but require careful tax planning to maximise returns.

‍

‍

Investment Bonds

Investment bonds are a flexible way to invest outside pensions and ISAs, often used for estate planning, gifting, or care fee protection.

How They Work

• Invest a lump sum in a bond linked to funds such as equities or multi-asset portfolios.
• Growth is tax-deferred, so you don’t pay income or capital gains tax each year.
• You can withdraw 5% of your original investment per year without triggering a tax charge.

Tax Considerations

• Withdrawals above 5% may trigger a chargeable event taxed at your income tax rate.
• Onshore and offshore bonds have different tax treatments, which can be used strategically.

Benefits

• Can supplement retirement income without affecting pension or ISA allowances.
• Can be placed in trust to help manage inheritance tax.
• Useful for flexible income or care fee planning.

Considerations

• Not fully tax-free; withdrawals above allowances are taxed.
• Less liquid than a GIA, especially if in trust.
• Investment choices matter – the underlying funds drive growth and risk.

‍

‍

Other Cash Assets

Other non-pension investments include premium bonds and traditional cash savings, which provide liquidity and security but typically offer lower growth potential.

‍

‍

Common Questions and Mistakes

“I can only hold £20,000 per ISA”

You can use your full annual allowance each year, plus any unused allowances from previous years in most cases. Crucially, you don’t need to open an ISA each tax year.

“Don’t need ISAs if I invest in a pension”

ISAs complement pensions, offering tax-free growth and liquidity before age 55.

‍

‍

Final Thoughts

Non-pension investments play a key role in retirement planning. ISAs provide tax-free growth, GIAs offer flexibility with taxable investments, and investment bonds support estate planning and deferred tax benefits. Understanding the options and their tax implications ensures your savings work efficiently alongside your pension.

Wealth of Advice can help you build a diversified investment strategy that balances growth, tax efficiency, and flexibility. Explore our guides and blog posts to make informed decisions about your non-pension investments today.

‍