Thirty-seven per cent of UK adults are using an individual savings account (ISA) to save for retirement, rising to 62% among those aged 55-64, research from LV= has found.

According to the findings, adults in younger age brackets were more likely to be using ISA savings for reasons other than retirement saving, with 26% of 18–34-year-olds intending to use their ISA savings for a mortgage deposit instead.

The research also highlighted gender differences as LV= found that men are more likely to be saving in their ISA for retirement than women, at 42% compared to 31%.

LV= said that while using pension tax allowances in an efficient way can be “crucial” for securing a comfortable retirement, there are times when it may be better to opt for an ISA over a self-invested personal pension to top up pension income.

For example, LV= pointed out that some of those who have already started accessing their pension savings can be limited to adding £10,000 to a SIPP each year, whilst the annual limit for ISAs is £20,000.

LV= said that ISAs also offer greater flexibility and earlier access to money, suggesting that, as the minimum pension age increasing to 57 and the state pension age rising to 67 by 2028, this may be an important factor in ISA usage for those looking to retire early.

Sales director at LV=, Gwen Haggo, said that current interest rates are also “much more favourable” for savers compared to recent years.

“However, there is no guarantee that this will continue indefinitely,” she said. “With investors worried about short-term losses, having an ISA with smoothed investments, could be a great option for those looking to grow savings in addition to their pension pot.”

She also suggested that, when approaching retirement, it can often be worthwhile to consider spending some non-pension assets first, which can also help reduce the estate for inheritance tax purposes.

“It could also help to maximise the amount of wealth available to pass on to loved ones later by not dipping into pension assets until it is necessary,” Haggo added.

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