Net retirement outcome: pension vs ISA.
Better option
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Pension (net spendable)
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ISA (net spendable)
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Your breakdown
Updates live as you type| Step | Pension | ISA |
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The same money, two wrappers, different tax
Pensions and ISAs are taxed at opposite ends. A pension gives you tax relief going in, grows free of tax, then taxes 75% of what you take out, leaving the first 25% tax-free. An ISA is funded from money you have already paid tax on, grows tax-free, and pays out entirely tax-free. The honest way to compare them is to start from the same net amount in your pocket today and follow it through to net spendable cash in retirement. That is exactly what this tool does, grossing up the pension contribution by your relief rate and applying your expected retirement tax rate at the end.
Following £10,000 of net pay for 20 years
Take the defaults: £10,000 of net money, 40% relief now, a 20% tax rate in retirement, 6% annual growth, and 20 years to run. Inside a pension, your £10,000 of net pay grosses up to £16,667, because higher-rate relief means £10,000 net buys £16,667 gross. Over 20 years at 6% it multiplies by 3.2071 to £53,452. A quarter comes out tax-free and the other three-quarters is taxed at 20%. The ISA gets your £10,000 net, grows by the same 3.2071, and is all yours at the end.
The pension lands at £45,434 net against the ISA's £32,071, a lead of £13,363 from the same starting cash. The gap is almost entirely the up-front higher-rate relief working on a bigger sum for two decades.
Where the answer flips to the ISA
The pension does not always win, and the model shows why. The relief advantage is at its strongest when you get high-rate relief going in and pay a low rate coming out. Switch the relief rate to basic 20% and set the retirement rate to 40% and the pension's edge collapses, because you are effectively giving back more than you got. The classic sweet spot is the higher-rate taxpayer now who expects to be a basic-rate taxpayer in retirement, which captures a 40% saving and pays only 20% later, plus the 25% tax-free slice on top. If you expect the same rate in and out, the pension still edges ahead purely because of that tax-free quarter, but the margin is slim. A salary-sacrifice pension widens the gap further by also saving National Insurance, which this tool does not even count.
Tax is only half the decision
Net pounds are not the whole story, and treating this purely as a maths contest is the common mistake. An ISA can be accessed at any age, with a £20,000 annual subscription limit, while a pension is locked until 55, rising to 57 from 2028. That access difference is worth real money to someone who might need the funds before retirement or who is aiming to stop work early. Pensions also sit largely outside your estate for inheritance tax under current rules, though that treatment is changing from April 2027, whereas ISAs form part of your estate. My practical steer for most people: capture any employer pension match first, because that is free money no ISA can match, then use the ISA for flexibility and medium-term goals, and route higher-rate relief into the pension for the long haul. The honest caveat is that this tool assumes a single fixed retirement tax rate, when in reality you can manage withdrawals across the personal allowance and basic band to lower the effective rate the model applies.
Frequently asked
Can I pay into both in the same year?
Yes, and many people should. The £20,000 ISA allowance and the £60,000 pension annual allowance are entirely separate, so you can use both. Pension contributions also need to stay within your relevant earnings to attract relief, but for most savers the two limits operate independently and using both is sensible.
Does the Lifetime ISA change this?
It can, for the under-40s. A Lifetime ISA adds a 25% government bonus on up to £4,000 a year, which mimics basic-rate pension relief while keeping ISA-style tax-free withdrawals from age 60. For a basic-rate taxpayer it can rival a pension, though the pension's higher annual allowance and employer contributions usually win for larger or higher-rate savers. This tool models a standard ISA, not a Lifetime ISA, so treat a LISA as a separate comparison.
What happens to my pension if I die before retirement?
Defined contribution pensions can usually be passed on to named beneficiaries outside of your estate, which makes them highly efficient for inheritance purposes under current rules. Beneficiaries can receive the pot as a lump sum or drawdown and, if you die before age 75, it is typically paid free of income tax. From April 2027 unspent pension pots will become subject to inheritance tax, so the rules are changing and it is worth reviewing your nomination and estate plan before then.
Does salary sacrifice make the pension comparison even stronger?
Yes, significantly for most employees. With salary sacrifice your employer reduces your gross salary and pays the same amount directly into your pension, meaning neither you nor your employer pay National Insurance on that slice. The employer NI saving is often passed on as an additional contribution, which this calculator does not model. If your employer offers salary sacrifice, the real-world pension advantage over an ISA is wider than the numbers shown here.