Using ISAs to save for retirementTHIS IS AN UNPUBLISHED DRAFT
Your retirement years should be spent travelling the world, spending time with your family, taking up new hobbies - basically doing all the things 40 years of work have stopped you doing.
Unfortunately, thanks to the economic situation and a ticking demographic time bomb, which will see more people living for longer - the number of people aged 85 and over will apparently more than double over the next generation – you will not be able to rely on the government alone to fund your golden years. This is a good reason to take your pension into your own hands.
The number of people putting money aside for the future is plummeting, with only 38 per cent of the population saving into private pensions.
Soaring inflation is also eroding the value of any savings. The rate of inflation has overshot the Bank of England's 2 per cent target for 23 consecutive months and is currently 4.8 per cent.
But there is a great, tax free alternative - cash ISAs, which are easy to access and simple to set up.
You may like to consider ISAs because uncertainty about employment prospects means it is less likely that you will be employed up until retirement age – so you won't necessarily be able to save into an employer's or individual pension scheme.
There is, of course, your state pension. However, the basic amount for 2012/13 is just £107.45 a week. The age at which you can take your state pension is going to increase, meaning you'll need to work for longer. It is vital that you keep up your National Insurance payments to make sure you are entitled to your state pension, particularly if you have stayed at home to raise children.
All in all, the outlook is uncertain and relying solely on the state pension may not be enough to fund 20 or 30 years of retirement, especially if you have additional healthcare costs. You should be thinking now of new ways to pay for those years after work.
Cash ISAs are tax free individual savings accounts every adult in the UK can use. Each tax year - so from April to April - everyone aged 16 or over has an ISA allowance which is the maximum that can be saved within the product. The cash ISA allowance for 2011/2012 is £5,340. The main benefit is all interest earned within a cash ISA is tax free so it is unlikely you'll be able to find a normal savings account that pays more interest. There are plenty of products available so it is easy to find the best cash ISA interest rate for you. Just remember to read the small print. Most are variable rates, which means they can adjust according to the Bank of England base rate or for the provider's own reasons, although you can always get fixed rate cash ISAs if you'd prefer. And be sure to familiarise yourself with stipulations such as withdrawal and transfer fees.
Issued by Barclays
This article has been written for information and interest purposes only. The information contained within this article is the opinion of the author only, and should not be construed as advice or used to make financial decisions. Expert financial advice should always be sought and any links contained within this article are included for information purposes only.
Barclays is a major global financial services provider engaged in retail banking (bank accounts and instant access savings accounts), credit cards, corporate banking, investment banking, wealth management and investment management services, with an extensive international presence in Europe, the Americas, Africa and Asia. With over 300 years of history and expertise in banking, Barclays operates in over 50 countries and employs over 140,000 people. Barclays moves, invests and protects money and provides stocks and shares ISAs, home insurance, life insurance, a mortgage calculator, guides on how to buy shares and other services for over 49 million customers and clients worldwide. For further information about Barclays, please visit our website www.barclays.co.uk.
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