Data reveals ISAs are key tool for pension planning

18 September 2024

Written by Retirement Line

A new report has revealed that a significant number of people in the UK are turning to ISAs, particularly stocks and shares ISAs, to bolster their retirement savings.

The data from LV shows that 37% of UK adults are using ISAs as part of their retirement savings strategy, with the figure jumping to 62% for those aged 55-64. This increase between age groups highlights the growing reliance on ISAs for those nearing the end of their careers.

Among the younger population, specifically adults aged 25-44, there is a strong interest in stocks and shares ISAs that offer "smoothing" elements. These aim to reduce the impact of daily market volatility while still looking for strong returns. 

According to data from LV, 77% of people in this age group are attracted to these types of ISAs, reflecting a desire for stability as they build their retirement nest egg.

The data also shows a gender disparity in ISA use for retirement savings, with men being 11% more likely than women to use their ISA for this purpose. This gap indicates that there are key differences in how men and women approach retirement planning, potentially due to varying financial priorities or levels of financial literacy or confidence.

Diverse uses of ISAs

ISAs aren't just for retirement savings, of course. They are a flexible financial tool that savers can use for various goals. 

For instance, the data found that 10% of UK adults are using their ISAs to save for a mortgage deposit. Another 10% are planning to use their ISA funds to gift money to family members. 

This versatility makes ISAs a valuable resource for those looking to manage both short-term and long-term financial objectives.

Expert insights on ISA usage in retirement planning

Gwen Haggo, Sales Director at LV, offers valuable advice for those approaching retirement and seeking to maximise savings growth. She said: “Interest rates are presently much more favourable for savers when compared to recent years. However, there is no guarantee that this will continue indefinitely.”

When planning for retirement, Haggo suggests considering the use of non-pension assets first, such as ISAs, to meet immediate financial needs. She explains that this approach can help reduce the size of an estate for inheritance tax purposes, potentially leaving more wealth for loved ones. 

The impact of recent ISA rule changes

Despite recent changes in ISA regulations that were expected to boost contributions, we didn’t see a boom in the number of people paying into them. 

In the April rule change, savers were allowed to contribute to more than one of each type of ISA annually. However, research by Opinium reveals that 87% of financial advisers reported no noticeable change in their clients' ISA contributions following this update.

This lack of response could be due to various factors, including economic uncertainty or a lack of awareness about the rule change.