Nearly a quarter, 21 per cent, of pension savers are making greater use of ISAs for retirement planning following the pension freedoms, MetLife has found.

According to a recent study by MetLife, there has been a considerable shift from pension savings to ISAs, with more than one in three, 34 per cent, of savers planning to rely on the newer savings product for the majority of their retirement income. Even among over-55s surveyed, 28 per cent are considering using ISAs.

Nonetheless, with over two thirds, 66 per cent, only saving into a cash ISA, just 10 per cent said they were happy with the rates that they receive and 55 per cent noted that they were dissatisfied with their ISA rates.

MetLife also found that the increased interest in ISAs for retirement has been driven by a switch in attitudes following the launch of the pension freedoms and increases in subscription limits with financial advisors welcoming the new pension rules. Sixty three per cent of retirement specialist advisers have changed their recommendations on using ISAs for retirement planning.

MetLife UK Wealth Management Director Simon Massey, said: “The increase in annual ISA subscription limits from £15,240 to £20,000 in April this year highlights how much can be saved tax-free and makes them a real option for retirement planning.

“But it is worrying that with so much ISA saving focused on cash ISAs that so few savers are happy with the rates they are earning. However, it’s understandable than many are nervous about investing their money in a traditional stocks & shares ISA when markets are uncertain.”

However, there are benefits that can be justified for both pensions and ISA products. Both are able to grow free of income tax and capital gains tax and neither incur capital gains tax. Dissimilar to ISAs, pension savers can benefit from tax relief on their contributions, while income that is taken later on is subject to income tax.

While ISAs provide a more flexible option and can be accessed at any stage, pensions are only accessible after the age of 55 and so may not be suitable for people who need to access their funds earlier.

Saga Investment Services financial planner Amanda Cook, noted: “If people are in the position to do so, then they should consider using both their pension and ISA allowances to fully maximise the tax advantages.

“People should consider a pension if they don’t need access to the money before age 55 and should think about the bigger picture, working with a financial planner will ensure they are always taking the right action towards achieving their goals.”

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