Answer

Dear Paul,

Thank you for your question.

A couple of general points then I will answer your question.

A pension is a long-term investment plan which aims to provide an income in retirement for the scheme/plan holder. Pensions attract tax relief at the member's marginal rate of tax, so either 22% or 40%.

ISAs (Individual Savings Accounts) are tax efficient but not as tax efficient as pensions. They are also personal and so the individual has total control over how the money is applied, so you cannot instruct this individual to pay into a pension as it's now their money.

In 2006 the Government, in their infintite wisdom, reviewed Stakeholder and decided to increase the cap on annual management charges to 1.5%, this makes them more expensive and more restrictive in terms of investment options than personal pensions. So it is not safe to assume that a Personal Pension is the best option for this employee.

In answer to your specific question, it is possible to pay up to 100% of earned income into a pension in any one tax year up to the maximum of £225,000 per annum. Therefore it is unlikely that you will be prevented from making a single contribution equal to the amount currently held within the individual ISA.

In practise it would be best to take fee-based advice on the practicalities of scheme set-up, fund choice and plan charges.

Yours Sincerely,

 John Ditchfield