Pension vs ISA calculator
- Compare the same saving in a pension vs an ISA
- Factors in tax relief going in
- Factors in tax on the pension coming out
- Shows the real net amount from each
- No sign-up required
Pension vs ISA calculator
Enter how much of your take-home pay you'd save each month, the years to retirement, expected growth, and your tax rate now and in retirement. This compares what a pension and an ISA would each leave you after tax.
This is an estimate, not financial advice. It assumes the same money is saved either way, that pension relief is added at your current rate, and a flat growth rate, which real returns won't follow exactly. It doesn't model employer pension contributions, which usually make a pension the clear winner where available. Source: gov.uk pension tax relief.
Sources
- Pension tax relief gov.uk
- Individual Savings Accounts (ISAs) gov.uk
- Pensions and retirement guidance MoneyHelper
Pension vs ISA: how the tax works
Pensions and ISAs are the two main tax-friendly ways to save for the long term, but they're taxed at opposite ends. A pension gives you tax relief going in and taxes you coming out. An ISA gives you no relief going in but is completely tax-free coming out. Which leaves you better off depends mostly on your tax rate now versus in retirement, and on whether you'll need the money before you can touch a pension.
The pension boost going in
When you put money into a pension, the government adds tax relief at your marginal rate. So £100 from your take-home pay becomes £125 in a basic-rate pension, because the 20% you paid in tax is added back. For a higher-rate taxpayer, £100 becomes about £166 once you reclaim the extra relief. That's an immediate uplift an ISA simply doesn't offer.
The tax coming out
The trade-off is that pension withdrawals are taxed. But 25% comes out completely tax-free, and the remaining 75% is taxed as income, often at a lower rate in retirement than when you were working. An ISA has no tax at all on the way out, but it never got the boost on the way in.
A worked example
Say you save £200 a month of take-home pay for 25 years at 5% growth, and you're a basic-rate taxpayer now and in retirement. In an ISA that grows to about £117,000, all yours tax-free. In a pension, your £200 becomes £250 gross after relief, so the pot grows to about £146,000. Take the 25% tax-free (£36,600) and pay 20% on the rest, and you're left with about £124,000. The pension comes out ahead by around £7,000, purely from the tax-free 25%.
Now change one thing: you pay 40% tax now but only 20% in retirement. The pension pot grows even larger because of the bigger relief, and you'd end up with roughly £166,000 net against the same £117,000 ISA. That gap, nearly £49,000, is the classic case for a pension: get relief at 40%, pay tax at 20%.
When the ISA is the better choice
The numbers aren't everything. An ISA wins in several situations:
- You might need the money before 55 (rising to 57 in 2028). A pension is locked until then; an ISA isn't.
- You expect to pay a higher tax rate in retirement than now, which flips the pension maths.
- You've already used your pension annual allowance for the year.
- You want the simplest possible access and inheritance.
Most people should use both
This isn't really an either-or. The usual order is: grab any employer pension match first, because that's free money nothing else can beat, then split spare savings between a pension for the tax relief and an ISA for flexibility. The ISA covers you for anything you might need before retirement age; the pension does the heavy lifting for later life. The ISA allowance is £20,000 a year and the pension annual allowance is usually £60,000.
Model your own split above. To see how pension withdrawals are taxed in practice, use the withdrawal tax calculator, and for the full retirement projection use the pension pot calculator.
Common questions
For most people saving for retirement, a pension usually wins on the numbers, because you get tax relief going in and 25% comes out tax-free. The gap is biggest if you pay 40% tax now but only 20% in retirement. An ISA wins on flexibility, since you can access it at any age and take it all tax-free. Many people use both.
A pension gets tax relief on the way in, so £100 of your take-home becomes £125 in the pension at basic rate, or about £166 at higher rate. It's taxed on the way out, but 25% is tax-free and the rest is often taxed at a lower rate in retirement than when you were working. That upfront boost plus the tax-free 25% usually outweighs the ISA's tax-free withdrawals.
An ISA is better when you might need the money before age 55 (rising to 57 in 2028), because a pension is locked until then. It's also useful if you've already used your pension annual allowance, if you expect to be a higher-rate taxpayer in retirement than now, or if you want the money to be simple to access and pass on.
Yes, and it's a common and sensible approach. You can pay into a workplace or personal pension and an ISA in the same year. A typical plan is to get any employer pension match first, then split spare savings between a pension for the tax relief and an ISA for flexibility. The ISA allowance is £20,000 a year and the pension annual allowance is usually £60,000.