Pension alternatives


 

Are there alternatives to pensions?

Yes there are, but from the outset it's important to understand that a pension scheme may represent the best option for you – simply due to the tax relief you'll receive.

Some of these alternatives may not be available to you or appropriate for your circumstances. Before you consider investing in an alternative to a pension as a means of providing income in retirement, we recommend you speak to a professional adviser.

ISAs

An ISA is a tax-free savings product. There are two different types; you can split your savings into lower risk cash options, or invest in stocks and shares, which offer greater potential growth, but with higher risks attached.

You can draw your money out whenever you want, and there's no tax on income or capital gains on the interest. You can find the current limits on how much you can save tax-free on the Gov.uk website.

Be aware there may be tiered levels of interest and notice periods on certain cash ISAs.

Property

In exactly the same way you'd put money into a pension plan, you could take out another mortgage on residential property (if you're able to). Hopefully, the property can then be sold for a profit and that money used as income.

As an alternative of course, you could look for a buy-to-let property and – as long as you've paid off the mortgage by the time you retire – it may provide a relatively steady income source. Find out more about this on our buy-to-let page.

Other alternatives

There are other alternatives that can be used to produce an income in retirement but again we would recommend speaking to a professional adviser before considering investing. This is not an exhaustive list, but some of the more common options are:

Shares – You can invest directly into shares in companies listed on the Stock Exchange. Depending on the profitability of the company, the share price can rise as well as fall, and you may receive a dividend payment, although this isn't guaranteed. Be aware that this can be a high risk option.

Unit Trusts – A unit trust is a way of spreading the risks of directly investing in shares. It allows you to invest in a wide range of companies through one product. Some unit trusts are designed for growth, whereas others are used for producing income.

Investment Bonds – These are usually offered by insurance companies, and can offer a range of investment risk. You invest a lump sum of money with the company, and depending on the company performance and profitability, you may enjoy a return on your money that can either be added to the capital, or taken as income.

 

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