Pension vs ISA Calculator United Kingdom
This pension vs ISA calculator compares the two for 2026/27, showing how tax relief, the 25% tax-free lump sum and your retirement tax rate change the result.
What it does
The Pension vs ISA Calculator compares what a gross pension contribution is worth in retirement against putting the same money into a Stocks & Shares ISA. A pension is funded before tax and grows gross, but only 25% comes out tax-free and the rest is taxed; an ISA is funded from taxed income yet everything comes out tax-free.
Data sources & parameters
The figures below drive this calculator. We keep them aligned with the latest official guidance, and each result recalculates automatically whenever a value changes.
| Parameter | Value | Source | Last updated |
|---|---|---|---|
| Pension tax-free lump sum fraction | 0.25 | gov.uk | Effective 2026-04-06Fixed in statute, no change announced for 2027/28; row now open-ended. Source: gov.uk pension tax; audit 2026-09-23 |
We always strive to use the latest data for every variable so our results and reports are as accurate as possible. Even so, errors are possible — you should not rely on this tool or its report alone, and we accept no liability for any decision made based on it.
The formula
growth = (1 + return)^years; pension_net = pot×0.25 + pot×0.75×(1 − retirement rate); isa_net = (gross × (1 − rate now)) × growth; advantage = pension_net − isa_net
How it works
It grows both pots at your expected annual return over the years you set. The pension keeps the full gross contribution; 25% of the final pot is tax-free and the remaining 75% is taxed at your retirement rate. The ISA starts from your contribution after Income Tax at your current rate, then grows tax-free with nothing taken at the end.
Where it is used
- Deciding whether to salary-sacrifice into a pension or save in an ISA
- Seeing how tax relief and the 25% tax-free lump sum change the outcome
- Comparing outcomes for basic, higher and additional-rate taxpayers
Worked example
A £10,000.00 gross pension contribution grows to a net …, against … from the same money in an ISA — a pension advantage of ….
Whether to save in a pension or a Stocks and Shares ISA comes down mostly to tax. A pension is funded before Income Tax and grows untaxed, but three quarters of what you withdraw is taxed. An ISA is funded from taxed income, but it grows and pays out tax-free. This calculator grows both at the same return and shows which leaves you with more.
Why the two routes are taxed so differently
The difference is when tax is paid. Money going into a pension avoids Income Tax now, so a £10,000 gross allocation is invested in full. The same £10,000 of gross salary put into an ISA is taxed first, leaving a higher rate taxpayer only £6,000 to invest. At the end, only 25% of the pension is tax-free and the other 75% is taxed as income, while the ISA pays out every pound untouched.
The role of your tax rate now versus later
A pension defers tax rather than removing it, so the comparison depends on your marginal rate today and in retirement. A higher rate taxpayer now who expects to pay basic rate in retirement gets relief at 40% and pays 20% on most of the pot, a clear win. With the same rate in both periods, the tax-free lump sum still tips it towards the pension. Only if your retirement rate is higher than today’s does the ISA start to win. Set the two rates to your own situation.
Access matters too. An ISA can be used at any age without tax, which makes it the natural home for money you might need before retirement. A pension is normally locked until the minimum pension age, 55 now and 57 from April 2028. Many people use both: the pension to capture tax relief for the long term, and the ISA for medium-term goals and to bridge an early retirement.
How the calculation works
Both pots grow by the same factor, one plus your expected annual return compounded over the years invested. The pension grows the full gross contribution; at the end 25% is taken tax-free and 75% is taxed at your chosen retirement rate. The ISA starts from the contribution after Income Tax at your current rate and grows by the same factor, with nothing deducted at the end. The pension advantage is the pension’s net value minus the ISA’s; a positive number means the pension comes out ahead.
A worked example
A £10,000 gross contribution grows at 5% a year for 20 years, a factor of about 2.653. The saver pays 40% tax now and expects 20% in retirement. The pension grows to about £26,533; a quarter, £6,633, is tax-free and the other £19,900 is taxed at 20%, leaving £22,553. The ISA starts from £6,000 after 40% tax and grows to about £15,920, all tax-free. The pension comes out about £6,633 ahead. For a basic rate taxpayer now, the ISA starts from £8,000 and reaches about £21,226, so the pension’s lead narrows to about £1,327.
What the comparison leaves out
Two common real-world factors usually favour the pension further. Employer contributions, where your employer adds to your pension when you pay in, have no ISA equivalent and often outweigh everything else. Salary sacrifice also saves National Insurance on pension contributions, raising the effective relief. In the other direction, pension income is taxed progressively in retirement, so a large pot drawn quickly can push you into a higher band than the single rate you chose. None of these are in the calculation, so treat the result as the basic tax comparison.
Common mistakes to avoid
The most common is comparing a pension and an ISA on the same headline contribution while forgetting that the ISA amount is already after tax; the calculator handles this by starting the pension from the gross figure. Another is assuming your retirement tax rate will match today’s, when for many people income in retirement is lower. A third is locking money into a pension that you turn out to need in your forties. And do not rely on one return assumption; try several.
Assumptions and limitations
This is a planning estimate, not advice. It uses the 25% tax-free fraction, stored as a parameter sourced from gov.uk. It assumes one contribution, a constant return and that all the taxed withdrawal falls in one retirement tax band rather than straddling the personal allowance or several bands. It does not model the ISA or pension annual allowances, employer contributions, salary sacrifice, the lump sum allowance or means-tested benefits. Your personal allowance may cover part of your pension income, so real outcomes can differ. Check current allowances and speak to a regulated adviser before making large decisions.
About This Pension vs ISA Calculator
Use this pension vs ISA calculator to get an instant, accurate estimate. The figures follow official GOV.UK guidance and every rate and threshold is kept up to date for 2026. Adjust the inputs above to match your situation, or browse all our calculators to plan your next step.
Tax year 2026
Frequently asked questions
Is a pension or an ISA better for retirement?
How does the 25% tax-free lump sum work?
Why is the pension funded with a bigger amount than the ISA?
Does this calculator include the ISA annual allowance?
What return should I assume?
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