Pension hope for babyboomer generation

The top rates on annuities – the product retirees buy to turn a pension pot into an income – held steady last month, temporarily halting their downward spiral.

It points towards potential breathing space for a generation of 'babyboomers' approaching retirement.

A raft of scare stories over the summer suggested that millions of over 50s are on a 'collision course with an impoverished retirement'. Almost eight in ten are set to receive an annual income of just £8,000, it was predicted.

And after decades of annuity rates drifting unabatedly downwards, even a £100,000 pension pot now only equates to an income of £5,630 a year for a couple.

With the help of annuities expert, Billy Burrows at Burrows & Cummins, we take a look at what's going on.

What are annuities?

Annuities are like insurance in reverse – you pay a lump sum (your pension pot) and get monthly payments in return, guaranteed for the rest of your life.

When you hand over your life savings, an insurance company invests your pot into 'safe' assets. More often than not, these will be government bonds, known as 'gilts'.

This means the rates offered to newly retiring pensioners are largely dependent on the return – or yield – gilts are providing at the time.

What is this 'hope' for rates?

Encouragingly for those preparing to buy an annuity, the gilts yields firmed this month.

This has been helped, in part, by confidence in the stock market, with the FTSE 100 rising by 100 points since late September. With markets climbing, investors have sold 'safe' gilts, and bought more volatile shares. This pushes the price of gilts down but the yield - which is like the interest rate on any other bond - up.

The news that the UK economy grew by 0.8% in the last quarter is a good example of how this works. The positive news saw investors sell gilts, spiking the yields to a new one-month high.

Billy Burrows, an annuity expert with Burrows & Cummins, says the trend has brightened the outlook for over 60s looking into annuity purchases.

He says: 'This year it seems that yields are increasing so perhaps there is a chance that rates will increase, albeit by a small margin. But I don't think it is sensible deferring an annuity purchase in hope for higher rates because any gains will be modest.'

Why are rates so low?

For nearly twenty years now, annuity rates have been in seemingly terminal decline. Back in 1991, a £100,000 pot could have secured an standard annuity income of over £15,000 a year. In June, the level fell below £6,000. Check out the graph below for a snapshot.

Billy Burrows' benchmark measure of annuity rates shows that the average has declined by significantly over the last twelve months.

Billy Burrows: Expert annuity advice

A year ago, if a man 65 with a £100,000 pension pot and purchased a joint life annuity for him and his wife, aged 60, he would receive around £6,000 per annum. Today that same annuity pays just £5,630 - a fall of 6% over the past twelve months.

That wasn't helped by sudden cuts in bond yields in August, which sent rates plummeting by about 1% on average.

Yet, according to Burrows, things have stabilised because Canada Life – one of the biggest players in the annuity market – has held its rates firm since July.

In his regular annuity rates round-up for This is Money, Burrows wrote: 'Recently, bond yields have risen and Aviva increased rates, but then (18 October) Canada Life cuts its rates. Annuities are like a see-saw - one minute up, the next minute down.

One of the factors leading to Canada's cut will have been the need to reduce the level of new sales as it was top of the best tables for September and first half of October. Burrows says a lack of competition is also a major downward force on rates.

He says: 'For standard annuities there are only three competitive companies; Aviva, Canada Life and L&G and the lack of competition removes some of the incentive to increase rates.'

What can you do?

Be aware that there are many types of annuity. Standard annuities pay a set income that doesn't change for the rest of your life; inflation-linked annuities rise with prices of goods; and investment-linked annuities that depend on stock market performance.

Also be aware that annuity providers vary greatly in the rates they offer. You have the right to shop around for the best.

Add to that, huge swathes of pensioners don't realise they could get an annuity boost if they have health problems. Even smoking or minor blood pressure troubles qualifies you for an 'enhanced annuity', with the difference between standard and enhanced rates as much as 24%, according to annuity specialists MGM Advantage.

Craig Fazzini-Jones, of MGM, says: 'The gulf between the best and worst annuity rates for conventional and enhanced products is becoming wider, and with rates in general falling it's more important than ever to consider alternative retirement income solutions that can really make the most of people's retirement savings.

Billy Burrows says significant rises in annuity rates are extremely unlikely. His tip is to look into locking part of your pension pot into an investment-linked annuity to boost returns, while leaving the majority in a safer lifetime income product.

›› More: Latest annuity rate news and predictions:

'The logic is that if an annuity is a long-term product, it should be backed by a suitable long-term investment,' he says.

'There are basically three types of investment linked annuities; MGM's Flexible Investment Linked Annuity, Prudential's income Choice and Sun Life Financial's i2live annuity. They all provide an income for life where future payments will rise or fall depending on future returns. They have a level of guaranteed income to protect investors from a stock market crash and they allow the flexibility to change the amount of income payments or buy a different type of annuity in the future.'

- Read Billy Burrows' free guide to investment-linked annuities for more information.

Read more: Pension

Should You Use a Reverse Mortgage in Retirement?

Should You Use a Reverse mortgage in Retirement?

US News & World Report, November 12th, 2010

Seniors strapped for cash might want to consider a reverse mortgage in retirement. These loans have become a popular tool for retirees who found their retirement savings hammered by the down market. Over 100,000 people took out a reverse mortgage in the U.S. last year. But a reverse mortgage isn’t necessarily a good idea for everyone. Here is how to tell if these loans are right for you.

Reverse mortgage basics. Reverse mortgages are not actually a mortgage, but a loan. These loans are available to homeowners who are at least 62 years old and who have significant equity in their homes. The loan basically taps your home’s equity, and the lender gives you the money either as a monthly payment, lump sum, or line of credit.

You will still be responsible for maintenance on the home, insurance, and property taxes. If you don't pay those things, the lender can foreclose on your property. Since interest is always accruing over the full term of the loan and home values can fluctuate, the reverse mortgage debt can end up exceeding your home's value. Plus, if you move out or sell the house, the loan becomes due.

Going into debt. You are taking on debt when you do this deal. One of the worst things you can do in retirement is go from a debt-free situation to being in debt. This is not the time in your life to take on a loan if you don’t have to.

Stay in your home. This financial move isn't for a home owner considering a move anytime soon. To justify the costs associated with this loan, you would need to stay in the house several years. If you take the lump sum, you could end up having to stay in the home until you die.

Costs. The fees on reverse mortgages can be expensive. You usually have to pay an origination fee, closing costs, mortgage insurance premiums, a mortgage insurance servicing fee, and fees for mandatory credit counseling. Recent legislation has put a stop to the over-the-top fees, but there are still many expenses associated with these loans.

Alternatives to reverse mortgages. There are times when a reverse mortgage does make sense for some people. But a reverse mortgage should really be a last resort. Here are a few suggestions for managing cash flow problems without using this financial product.

Read more of this article.

About Reverse Mortgages:  This article is an excellent primer on the reverse mortgage program.  If it sounds like something you might find useful, then learn more about this retirement financial tool, so that you can make the best decisions possible for your retirement.

Read more: Pension

Pension vs Isa: The big debate

Everyone from granny to graduate has a view - but for most of us these days, Isas rule supreme.

And they dominant the savings world for very good reasons.

Ask yourself this: how many ways can you save money, get instant access to your cash, and enjoy protection from the Government's tax-grabbing mitts?

Answers on a postcard please (clue: pensions ain't one of them).

With the amount you can save each year raised to £10,200, a maximum of £5,100 in cash, savvy savers have quickly come to regard Isas as long-term homes for their nest eggs.

But what about pensions? Are they still worthwhile?

A few years ago, the final salary pension was a mainstay of the British workplace. And that certainly was worthwhile. Millions of workers knew they would retire in comfort, which often meant two-thirds of their final income.

But such bounteous company perks have died a ghastly and painful death in the 21st Century.

We're left with a barren landscape of 'defined contribution' schemes, where retirement income depends on how much you save and how fast this grows.

And yet around 14m people in Britain still have a pension. The industry is still firing on (most of its) cylinders, too. Surely there must be benefits?

Right. There are. One is a new ability to inherit your forefathers' savings or pass on yours. Soon you'll be able to convert up to 100% of pots into cash once you hit 55 and leave any unused money to your loved ones on death.

But you've been able to do that with Isas for ages. So back to the big debate - what's the verdict? Isa or pension? We asked five independent experts for the lowdown.

We want you to get involved in the Big pension vs Isa debate, too. What do you reckon? Leave your thoughts in the reader comments at the bottom of this page.

• PENSIONS

pension pros:

- Tax relief

When you pay money into a pension the Government refunds the income tax you paid on it. Effectively, basic rate taxpayers only need to put in £80 to see £100 go into their pot; 40% taxpayers only need to put in £60 to see £100 added. When you draw on your pension you are taxed at income levels again. But in all probability you are going to have a smaller income and usually this means basic rate tax. According to Lorreine Kennedy, an adviser at Care Matters, this could mean you're 33% better off than with an Isa.

- High contribution limits

Work bonus: Many employers contribute to their workers' pensions

Pensions have high annual contribution limits of 100% of earnings, subject to an overall cap of £255,000.

- Employee benefits

Many companies have a staff pension scheme. Lots of these used to be generous, 'gold-plated' final salary arrangements. But now most depend on you sacrificing chunks of your salary and watching a pot grow (slowly).

However, most employers will at least match your pension contributions - some even put in more. So if you contribute, say, 6% your employer might put in another 6% or even 8%. Look at this as a pay rise - it'd be madness to say no.

And as Peter McGahan, of Worldwide Financial Planning, points out, you can save on National insurance, too. 'With a pension you can elect for a salary sacrifice which will allow you to avoid National insurance of 11%,' he says. 'So a basic rate tax payer could have tax relief at 20% on the contribution plus 11% national insurance saving. An Isa doesn't have any of these tax luxuries.'

- Tax-free growth

Virtually tax free growth within the fund. That should mean your money's safely stored away from the Government's prying eyes. pension funds did used to get dividend tax credits. But Gordon Brown axed this bonus in 1997. The move is said to have cost pension funds around £5bn a year. So much for 'safely stored', then.

›› Video: Are pensions worth the effort?

pension cons

- Not accessible until 55

This is where a pension falls down; you do not have immediate access to your cash in a time of crisis. Any money in a pension cannot be accessed until you reach 55. And even then, you will need to purchase an annuity – an insurance product that pays a set income for the rest of your life - unless you have a pretty large pot (size to be decided by the Government). [Read more on this here]

- They're complicated

Pensions are difficult to understand and are run in complex ways. This can be very off-putting for ordinary savers who just want to know how much they need to put aside and what they'll get back in old age.

- Government meddling

Raid: Gordon Brown has been accused of damaging pension pots

Watch out, Brown/Cameron/Blair/Thatcher (insert your PM of choice here) is about! Past governments have tinkered and fudged the pensions system to no end. It's made it difficult for savers to feel that their nest eggs are secure.

- Why it's time to take politics out of pensions

And this could keep happening, says David Thurlow: 'You can't access your pension fund until the Government says you can – this used to be 50, has recently been increased to 55 but could rise again. At present, you are allowed to take 25% of the pension fund as a tax free lump sum, but again, it is possible that a future government could abolish or restrict availability of this.'

• ISAS

Isa pros

Flexible options

Isas come in two types: a cash Isas (basically a savings account) and stocks and shares Isas (a wrapper that you can either place individual shares in, or more often a fund that will pick shares and bonds on your behalf).

- Read more: How to pick the best Isa

- Instant access

This is what makes Isas such winners. With both cash and shares Isas, you can get at your money as and when you want. Even fixed-rate cash Isas only see your money tied up for a few years. For those keen to ensure they can access their savings in an emergency – here's your ready-made answer.

- Best Isa rates tables

- Simple tax rules

Once your money is in a cash Isa, you will not have to talk to the taxman again. It won't be taxed as it grows and the income you take is totally tax-free.

- The 'wrapper' effect

Easy access: Isas are the winners in a cash emergency

Stocks and shares Isas act as tax 'wrappers'. As well as tax-free growth, you do not have to pay Capital Gains Tax (CGT). The only tax payable is dividend tax at 10%, which applies for both basic and higher rate taxpayers. Outside Isas, higher rate taxpayers pay 32.5%. And if you use a fund supermarket as your Isa 'wrapper', costs are significantly cheaper than with a pension.

- Read more: How fund supermarkets cut costs

- Means-testing in retirement

Used as a source of income, Isas have certain benefits for retirees. 'The Isa really comes into it's own at the time the person decides to stop working and start drawing an income from the fund,' says Lorreine Kennedy.

Danny Cox explains: 'Tax free income from Isa has no impact on age related allowances for the over 65s, no impact on personal allowances for those with income over £100,000 and there is no requirement to record on a tax return.'

- Lasting simplicity

You put your money in, you take your money out - it's very, very simple.

Isa cons

- No tax relief on contributions

There's no tax-back incentive as described for pensions above. So any growth isn't as powerful. 'On paper a pension will always produce a bigger fund for the same contribution because of the tax relief,' explains Danny Cox.

- Saving limits

You can only pay a maximum of £10,200 into Isas each year. You can invest all of it into a stocks and shares Isa, or save up to £5,100 into a cash Isa. These limits might well be sufficient for most people. Think about it, over the course of a 40-year working career, you can put away £400,000. But what about those wanting to save more or who start late? Perhaps you can only afford to start saving for retirement when you reach your 40s - the limit here is serious restriction.

David Thurlow says: 'One of the biggest drawbacks with an Isa is the contribution levels. A maximum of £10,200 can be paid into an Isa each year, whereas for most people allowable contributions to pensions are much higher'.

- No employer contributions

David Thurlow of Atkinson Bolton says: 'Employers can't pay into ISAs but can pay into pensions. So if your employer will pay into your pension, it is nearly always best to receive this.'

- Means-testing while young

While you are still working, an Isa will affect most means tested benefits, such as income support, whereas a pension pot pre-retirement will not.

TEN TOP CASH ISA TIPS

IsasEverything you need to know

Isa transfersHow to transfer & complain

Top IsasWhat should you go for?

Isa transfersTop Isas for transfers

Santander IsaGet 3.5% from Santander

Barclays at 3.1%Golden Isa shines

MaximIsa at 3.4%Open five Isas at once with Newcastle

Isa transfer woesIsa transfers still a shambles

Isa allowanceSavers don't use it up

Magnificent SevenSeven best cash Isas

• THE VERDICT

- Danny Cox (Hargreaves Lansdown)

'Isas provide an ideal way to grow tax-free cash savings as well as building capital by investing in the stock market. Isas are a better choice if access to savings is needed before age 55 or if 100% of the capital is required at once.

'In reality, most people should spread their savings between Isa and pension, so they have funds which they can access if they need to, whilst at the same time taking advantage of the tax benefits of pension for retirement savings.

- Find an independent adviser near you

- David Thurlow (Atkinson Bolton)

'In my view, many basic rate taxpayers should maximise their Isas before paying into pensions. The flexibility of the ISA gives it a clear edge, especially as with the pension they will get basic rate tax relief up font but end up paying basic rate tax on most of the income. For higher rate taxpayers, especially those that are likely to be basic rate taxpayers in retirement, the pension has the advantage, if you are comfortable with the inflexibility and the risk of government meddling with the rules. Where employers are paying into the pension scheme, this opportunity should be maximised.'

- Jason Witcombe (Evolve Financial Planning)

'For basic rate taxpayers my view is that Isas are generally better. With the exception of contributions made via an employer scheme, why would you tie money up in a pension for 20% tax relief when the odds are you will pay at least 20% tax in retirement?'

'However, higher rate taxpayers should focus more on pensions. Take an extreme example. Someone with an income of £110,000 is paying an effective rate of income tax of 60% on the top £10,000 of their income due to the loss of Personal Allowance. Paying money into a pension gets round this. Given the choice, most people would take £10,000 in their pension versus £4,000 of post tax income that they could put into an ISA.'

- Peter McGahan (Worldwide Financial Planning)

'It depends on the need for the investor. Personally, however, if I had an option for an immediate uplift of 66% with a pension [the effect for a higher rate taxpayer], I would value that higher than the accessibility of an Isa.

- Lorreine Kennedy (Care Matters)

'Anyone planning for their retirement should consider both pensions and Isas. It depends on how much you can afford to save. If you are considering contributing a modest sum of £20 per month, then perhaps a cash Isa on its own may be most appropriate route. Anyone able to save more than the annual Isa allowance should generally consider investing the excess into a pension.'

What do you think? Have the experts got it right or is there more to it? Share your views in the reader comments below...

Read more: Pension

Q&A: State pension age to rise to 66

What's happening?

Millions of Britons will have to wait longer to receive their state pension, the Government announced today.

How long?

The state pension age will rise to 66 by 2020 for both men and women. The changes will start to take effect from 2018.

Who is affected?

All Britons under the age of 57 on 6 April this year will have to wait until they're 66 before they get their pension.

Is that the worst of it?

Not likely. Ministers are also understood to have examined the possibility of extending the pension age to 70 and even higher in the following decades.

Work and Pensions Secretary Iain Duncan Smith has suggested the age at which people can claim the state pension could be 'indexed' to increasing life expectancy, as in Denmark.

Why is all this happening?

To be blunt: our heavily indebted Government (which owes about £890bn) can no longer afford to support Britain's ageing population. UK life expectancy is rising rapidly as we live healthier lifestyles and enjoy better medical care.

The average British male now lives until 77 years, and female until 81. Back when the state pension age was set at its current 65 level in 1925, only a third of men and 40% of women were expected to live to see their 65th birthday.

It means our taxes are being used to fund an ever-growing population of older, retired Britons. Official statistics project that by 2034 the number of people aged 85 and over will be 2.5 times larger than in 2009, reaching 3.5m and accounting for 5% of the UK population.

In the Spending Review today, Chancellor George Obsorne said: 'Raising state pension age is what many countries are now doing. It will save over £5bn a year.'

Any positives to soften the blow?

Yes. One is that axeing of the Default Retirement Age (DRA). This allowed employers to force staff to retire when they hit 65.

A Government consultation is currently in-process, with the results set to be announced before Christmas. Expect the DRA to disappear completely, fostering an older working population and reducing the state benefit burden.

Free eye tests, prescriptions, the winter fuel allowance and bus passes will remain for pensioners. As well as free TV licences for over 75s, which were rumoured to be scrapped. George Osborne said: 'We believe in cold weather payments for life, not just general elections'

Anything else?

Here's the silver lining: the actual level of the state pension could increase. Currently the full basic state pension is £97.50. That can be topped up with pension credits to about £130. But many are still left in abject poverty. Currently, around 2m retired people live below the poverty line.

At last month's Lib Dem party conference, Steve Webb talked at length about the need for a 'decent and fair' state pension that doesn't leave any retired Britons desperately needy.

Potentially, the Government will increase the level of state pension provision so that it is more adequate for poorer Britons who have been unable to save. Numbers such as £8,000 a year and £11,000 a year have been bandied about, but no one knows yet.

Read more: Pension

The Evolution of Reverse Mortgages

The Evolution of Reverse Mortgages

Reverse Mortgage Daily, November 3rd, 2010

Falling property values, rising business costs, fraud and greater regulatory scrutiny are among the biggest changes affecting reverse mortgages today according to an op-ed article from Bob Yeary, CEO of Reverse Mortgage Solutions.

Where does that leave the reverse Mortgage market? Clearly, the business is changing. Yet it can also be rewarding for those who are up to the challenge according to Yeary.

In addition to the social benefit, the fundamental financial logic behind future growth in the reverse Mortgage business remains convincing. Currently, there are 34 million Americans aged 65 or older. By 2030, that number is expected to more than double, to 71 million, or 21% of the population. Moreover, there are presently more than 12 million seniors in the U.S. who own their homes free and clear, owning an estimated $4 trillion in equity. That is a lot of collateral to be tapped. What’s more, the industry has achieved only 2% market penetration.

So, there’s clearly a lot of room to improve, but for whom and how? The reverse Mortgage business is still largely a “cottage” industry, with exceptions like Bank of America and Wells Fargo, and other big lenders are also starting to take notice. For example, Quicken Loans recently moved into reverse mortgages through One Reverse Mortgage, an existing company it acquired and retooled.

Read more of this article

About Reverse Mortgages:  As more and more people get Reverse Mortgages, the programs become more competitive and variable.  Find out more about your prospects of getting a Reverse Mortgage at NewRetirement.com

Read more: Pension

When a Safety Net Is Yanked Away

When a Safety Net Is Yanked Away

The New York Times, November 12th, 2010

November is long-term care awareness month, and to celebrate, a big player in the long-term care insurance industry announced on Thursday that it wanted to get as far away from the business as possible.

Citing well-known challenges to the long-term care insurance industry (but without really saying what they were), MetLife said that it would stop underwriting new long-term care policies for individuals after Dec. 30. The company will also cease new enrollments to group and other plans, say, through an employer.

The company added that it would continue paying claims on existing policies as long as customers continued paying premiums. Many of them may not, however, since MetLife recently asked state insurance regulators for permission to raise premiums on many policies by as much as 44 percent.

It wasn’t the only company not charging enough for its policies. The two leading players in the industry are trying to raise prices, too. Genworth Financial is seeking an 18 percent increase on older policies held by about 25 percent of its customers. And John Hancock has filed for permission to raise premiums for about 80 percent of its customers by an average of 40 percent. It has also temporarily stopped offering new long-term care insurance plans through employers while it tries to figure out what to charge.

State regulators may not bless these requests. But it suggests how far off the companies were in pricing their products.

So now that you’re aware of the situation, a question presents itself: Is long-term care insurance doomed?

Let me start by saying that this is a separate question from whether you should plan ahead for the possibility of many hundreds of thousands of dollars in long-term care costs. You should. One big risk here is facing down a $100,000 annual care bill for years on end and having no savings or insurance. Even if you have a decent amount of savings, you could spend everything and leave your spouse (more often than not a woman) with nothing to live on.

Wealthy people can pay for their own care. And Medicaid covers long-term care for people with no assets, though they may not be able to get the care they want where they want it.

Everyone else either has to save for the possibility that they’ll need care for years or buy insurance to cover the cost. If you’re wondering how likely you may be to make a claim, well, the insurance industry has had some trouble figuring that out, too.

Want some evidence? In the last decade, 11 companies that were once in the top 10 in market share in this area have bailed out, according to Limra, an industry research group.

A MetLife spokeswoman, Karen Eldred, didn’t want to add to the company’s statement from Thursday. She was more communicative earlier this month when I was finishing a column about long-term care planning.

Read more of this article.

Long Term Care insurance:  What does this upheaval mean for those looking to purchase Long Term Care insurance?  The market for programs is becoming tighter, and it might now be a good time to consider pulling the trigger on this insurance product.  Consider the options at NewRetirement.com

Read more: Pension

Pension vs Isa: The big debate

Everyone from granny to graduate has a view - but for most of us these days, Isas rule supreme.

And they dominant the savings world for very good reasons.

Ask yourself this: how many ways can you save money, get instant access to your cash, and enjoy protection from the Government's tax-grabbing mitts?

Answers on a postcard please (clue: pensions ain't one of them).

With the amount you can save each year raised to £10,200, a maximum of £5,100 in cash, savvy savers have quickly come to regard Isas as long-term homes for their nest eggs.

But what about pensions? Are they still worthwhile?

A few years ago, the final salary pension was a mainstay of the British workplace. And that certainly was worthwhile. Millions of workers knew they would retire in comfort, which often meant two-thirds of their final income.

But such bounteous company perks have died a ghastly and painful death in the 21st Century.

We're left with a barren landscape of 'defined contribution' schemes, where retirement income depends on how much you save and how fast this grows.

And yet around 14m people in Britain still have a pension. The industry is still firing on (most of its) cylinders, too. Surely there must be benefits?

Right. There are. One is a new ability to inherit your forefathers' savings or pass on yours. Soon you'll be able to convert up to 100% of pots into cash once you hit 55 and leave any unused money to your loved ones on death.

But you've been able to do that with Isas for ages. So back to the big debate - what's the verdict? Isa or pension? We asked five independent experts for the lowdown.

We want you to get involved in the Big pension vs Isa debate, too. What do you reckon? Leave your thoughts in the reader comments at the bottom of this page.

• PENSIONS

pension pros:

- Tax relief

When you pay money into a pension the Government refunds the income tax you paid on it. Effectively, basic rate taxpayers only need to put in £80 to see £100 go into their pot; 40% taxpayers only need to put in £60 to see £100 added. When you draw on your pension you are taxed at income levels again. But in all probability you are going to have a smaller income and usually this means basic rate tax. According to Lorreine Kennedy, an adviser at Care Matters, this could mean you're 33% better off than with an Isa.

- High contribution limits

Work bonus: Many employers contribute to their workers' pensions

Pensions have high annual contribution limits of 100% of earnings, subject to an overall cap of £255,000.

- Employee benefits

Many companies have a staff pension scheme. Lots of these used to be generous, 'gold-plated' final salary arrangements. But now most depend on you sacrificing chunks of your salary and watching a pot grow (slowly).

However, most employers will at least match your pension contributions - some even put in more. So if you contribute, say, 6% your employer might put in another 6% or even 8%. Look at this as a pay rise - it'd be madness to say no.

And as Peter McGahan, of Worldwide Financial Planning, points out, you can save on National insurance, too. 'With a pension you can elect for a salary sacrifice which will allow you to avoid National insurance of 11%,' he says. 'So a basic rate tax payer could have tax relief at 20% on the contribution plus 11% national insurance saving. An Isa doesn't have any of these tax luxuries.'

- Tax-free growth

Virtually tax free growth within the fund. That should mean your money's safely stored away from the Government's prying eyes. pension funds did used to get dividend tax credits. But Gordon Brown axed this bonus in 1997. The move is said to have cost pension funds around £5bn a year. So much for 'safely stored', then.

›› Video: Are pensions worth the effort?

pension cons

- Not accessible until 55

This is where a pension falls down; you do not have immediate access to your cash in a time of crisis. Any money in a pension cannot be accessed until you reach 55. And even then, you will need to purchase an annuity – an insurance product that pays a set income for the rest of your life - unless you have a pretty large pot (size to be decided by the Government). [Read more on this here]

- They're complicated

Pensions are difficult to understand and are run in complex ways. This can be very off-putting for ordinary savers who just want to know how much they need to put aside and what they'll get back in old age.

- Government meddling

Raid: Gordon Brown has been accused of damaging pension pots

Watch out, Brown/Cameron/Blair/Thatcher (insert your PM of choice here) is about! Past governments have tinkered and fudged the pensions system to no end. It's made it difficult for savers to feel that their nest eggs are secure.

- Why it's time to take politics out of pensions

And this could keep happening, says David Thurlow: 'You can't access your pension fund until the Government says you can – this used to be 50, has recently been increased to 55 but could rise again. At present, you are allowed to take 25% of the pension fund as a tax free lump sum, but again, it is possible that a future government could abolish or restrict availability of this.'

• ISAS

Isa pros

Flexible options

Isas come in two types: a cash Isas (basically a savings account) and stocks and shares Isas (a wrapper that you can either place individual shares in, or more often a fund that will pick shares and bonds on your behalf).

- Read more: How to pick the best Isa

- Instant access

This is what makes Isas such winners. With both cash and shares Isas, you can get at your money as and when you want. Even fixed-rate cash Isas only see your money tied up for a few years. For those keen to ensure they can access their savings in an emergency – here's your ready-made answer.

- Best Isa rates tables

- Simple tax rules

Once your money is in a cash Isa, you will not have to talk to the taxman again. It won't be taxed as it grows and the income you take is totally tax-free.

- The 'wrapper' effect

Easy access: Isas are the winners in a cash emergency

Stocks and shares Isas act as tax 'wrappers'. As well as tax-free growth, you do not have to pay Capital Gains Tax (CGT). The only tax payable is dividend tax at 10%, which applies for both basic and higher rate taxpayers. Outside Isas, higher rate taxpayers pay 32.5%. And if you use a fund supermarket as your Isa 'wrapper', costs are significantly cheaper than with a pension.

- Read more: How fund supermarkets cut costs

- Means-testing in retirement

Used as a source of income, Isas have certain benefits for retirees. 'The Isa really comes into it's own at the time the person decides to stop working and start drawing an income from the fund,' says Lorreine Kennedy.

Danny Cox explains: 'Tax free income from Isa has no impact on age related allowances for the over 65s, no impact on personal allowances for those with income over £100,000 and there is no requirement to record on a tax return.'

- Lasting simplicity

You put your money in, you take your money out - it's very, very simple.

Isa cons

- No tax relief on contributions

There's no tax-back incentive as described for pensions above. So any growth isn't as powerful. 'On paper a pension will always produce a bigger fund for the same contribution because of the tax relief,' explains Danny Cox.

- Saving limits

You can only pay a maximum of £10,200 into Isas each year. You can invest all of it into a stocks and shares Isa, or save up to £5,100 into a cash Isa. These limits might well be sufficient for most people. Think about it, over the course of a 40-year working career, you can put away £400,000. But what about those wanting to save more or who start late? Perhaps you can only afford to start saving for retirement when you reach your 40s - the limit here is serious restriction.

David Thurlow says: 'One of the biggest drawbacks with an Isa is the contribution levels. A maximum of £10,200 can be paid into an Isa each year, whereas for most people allowable contributions to pensions are much higher'.

- No employer contributions

David Thurlow of Atkinson Bolton says: 'Employers can't pay into ISAs but can pay into pensions. So if your employer will pay into your pension, it is nearly always best to receive this.'

- Means-testing while young

While you are still working, an Isa will affect most means tested benefits, such as income support, whereas a pension pot pre-retirement will not.

TEN TOP CASH ISA TIPS

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Magnificent SevenSeven best cash Isas

• THE VERDICT

- Danny Cox (Hargreaves Lansdown)

'Isas provide an ideal way to grow tax-free cash savings as well as building capital by investing in the stock market. Isas are a better choice if access to savings is needed before age 55 or if 100% of the capital is required at once.

'In reality, most people should spread their savings between Isa and pension, so they have funds which they can access if they need to, whilst at the same time taking advantage of the tax benefits of pension for retirement savings.

- Find an independent adviser near you

- David Thurlow (Atkinson Bolton)

'In my view, many basic rate taxpayers should maximise their Isas before paying into pensions. The flexibility of the ISA gives it a clear edge, especially as with the pension they will get basic rate tax relief up font but end up paying basic rate tax on most of the income. For higher rate taxpayers, especially those that are likely to be basic rate taxpayers in retirement, the pension has the advantage, if you are comfortable with the inflexibility and the risk of government meddling with the rules. Where employers are paying into the pension scheme, this opportunity should be maximised.'

- Jason Witcombe (Evolve Financial Planning)

'For basic rate taxpayers my view is that Isas are generally better. With the exception of contributions made via an employer scheme, why would you tie money up in a pension for 20% tax relief when the odds are you will pay at least 20% tax in retirement?'

'However, higher rate taxpayers should focus more on pensions. Take an extreme example. Someone with an income of £110,000 is paying an effective rate of income tax of 60% on the top £10,000 of their income due to the loss of Personal Allowance. Paying money into a pension gets round this. Given the choice, most people would take £10,000 in their pension versus £4,000 of post tax income that they could put into an ISA.'

- Peter McGahan (Worldwide Financial Planning)

'It depends on the need for the investor. Personally, however, if I had an option for an immediate uplift of 66% with a pension [the effect for a higher rate taxpayer], I would value that higher than the accessibility of an Isa.

- Lorreine Kennedy (Care Matters)

'Anyone planning for their retirement should consider both pensions and Isas. It depends on how much you can afford to save. If you are considering contributing a modest sum of £20 per month, then perhaps a cash Isa on its own may be most appropriate route. Anyone able to save more than the annual Isa allowance should generally consider investing the excess into a pension.'

What do you think? Have the experts got it right or is there more to it? Share your views in the reader comments below...

Read more: Pension