Pensions still the most tax-efficient way of saving says Institute for Fiscal Studies

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Pensions still the most tax-efficient way of saving says Institute for Fiscal Studies

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Posted on: 16/02/2016

Pensions are still the most tax-efficient way of saving, the Institute for Fiscal Studies (IFS) has stated.

That is despite forthcoming tax changes, added the IFS.

The organisation compared saving in a pension with buying a house, putting funds into an Individual Savings Account (Isa), or investing in buy-to-let property.

The main reason for the IFS to come down on the side of pensions is that, under the Auto Enrolment programme, employers have to match employee contributions. As a result workers get a 60% boost to their pension pots, the IFS said.

“Since employers rarely make equivalent offers to match employees’ contributions to say, an Isa or a house, it makes savings in a pension much more attractive relative to other assets,” the report said.

The study took into account the new Personal Savings Allowance (PSA) and changes to dividend taxation that come into effect in April, as well as possible changes to pension taxation.

From April 2016, dividends up to the value of £5,000 a year will be tax-free, although anyone receiving a higher amount will pay higher rates than at present.

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