It will be apparent to many who have read my blogs in the past that I am unashamedly pro ISA’s.

That doesn’t mean to say that I am not supportive of pensions (the defined contribution type), I am, but I think that it is worth looking at a few facts particularly when it comes to retirement planning.

1. ISAs were first introduced in 1999.
2. The forerunner to ISAs i.e PEPs were introduced in 1987 – these were seen as the stocks and shares equivalent of TESSAs (cash).
3. In 1987 the maximum annual allowance was £2400, the current maximum allowance is £11280.
4. Had a person used up all allowances available (including Single company PEPs), then total outlay over the 25-year period would be £197,600.
5. There are more than 1000 ISA millionaires in the UK.
6. Total receipts for ISA investments exceeded receipts into pension funds in 2011.
7. Assume a fund value of £1,000,000 and a yield of 3.5%, expected natural income would be £35,000 (free of tax). This is equivalent to £43750 for a basic-rate taxpayer,  £58,333 for a higher rate taxpayer and £70,000 for an additional rate taxpayer.
8. Given that the size of a “like for like” pension fund is also £1,000,000, then a 65 year old male would receive
• Single life annuity -level payment – guaranteed for 5 years – £59491
• This would be reduced to £42658 after tax
• Single life annuity – escalation at 3% – guaranteed for 5 years – £40850
• This would be reduced to £32680 after tax.

My point is that retirement planning should embrace the “F” word i.e. FLEXIBILITY.

There are “pros and cons” for both ISAs and pensions, in my view and to get the best possible results a combination of both should be adopted.

This has been our philosophy for many years and with annuity rates as low as they are and gilt yields also low (a factor affecting capped drawdown rates), pensions are having a tough time. That is not to say that this will always remain the case, but Guaranteed Annuity rates of 9% + that were particularly prevalent pre 2000 are unlikely ever to return.

With this sobering thought in mind, it seems sensible to diversify and not place all ones eggs in one basket.