Official figures show Britons saved more into stocks and shares Isas than personal pensio...

Isas more popular than pensions

Official figures show Britons saved more into stocks and shares Isas than personal pensions in the last tax year.

By Charlotte Beugge

Individual savings accounts (Isas) are proving more popular than pensions among Britons – even though the tax advantages of the latter far outweigh those of the former.

Figures from the Office for National Statistics show that £14.28 billion was saved into personal pensions, excluding stakeholder pensions, in the 2010/11 tax year.

In comparison, £15.84 billion was saved into stocks and share Isas. This reverses the previous year's figures when £12.54 billion was invested in stocks and shares Isas while £14.42 billion went into personal pensions.

This is the first time since 2001-02 that Isa saving has exceeded that for pensions.  With share Isas, gains are protected from the taxman and there is no additional tax to pay on dividend income. (It only triggers a 10% tax credit that's deducted before you receive your payment.) With pensions, contributions attract tax relief – so a £100 contribution into a pension actually costs a basic rate taxpayer £80 and a higher rate payer £60.

However, Isas are more flexible because the money can be withdrawn at any time, while with pensions it has to be left invested until the policyholder retires. In addition, the majority of money saved in a personal pension has to be spent on an annuity.

In next month's budget it has been suggested that the Chancellor is considering reducing pension tax relief for higher earners to help pay for an increase in the income tax threshold to £10,000.