ISAs: Maximise your retirement savings

Investing in an ISA alongside your pension can be a valuable shield against tax when it comes to retirement.


  • The tax-efficiency of pensions makes them essential to any retirement plan, but it’s wise to view them as simply part of a bigger toolkit at your disposal.
  • Pensions and ISAs are treated in contrast when it comes to tax, making them the perfect partners.
  • To maximise the benefits of both pensions and ISAs, and to make sure they fit with your long-term plans, working with an adviser can help.


When saving for retirement, pensions remain the first port of call – and for good reason. A range of benefits – including tax – accompany them, and they should form a fundamental pillar of any retirement savings plan, but it’s important not to rely on this alone.

Saving for retirement is all about choice and flexibility these days; instead of relying solely on a pension, there are many more income options available on reaching retirement and, with people today expected to live for two or three decades in retirement, it’s important to make the best of the different tools at your disposal.

The most natural accompaniment to a pension is an Individual Savings Account (ISA). These were introduced in 1999 to replace Personal Equity Plans (PEPs) and now form a major part of the retirement savings landscape.

Tony Clark, Senior Propositions Manager at St. James’s Place Wealth Management, points out that there’s long been a debate about which is the better retirement savings option: pensions or ISAs. He argues that using both is the best option, giving you instant diversification and more options.

“Now that it’s easier to access a pension as well as an ISA, the two products are much more broadly aligned. Having both offers more choices when making retirement decisions, and with the tax advantages you’re getting the best of both worlds.”

Working together

Tax treatment is the main difference between ISAs and pensions. The annual ISA allowance is currently £20,000, which you can use across Cash ISAs, Stocks and Shares ISAs, Innovative Finance ISAs, Lifetime ISAs, and Junior ISAs – although there are annual limits of £4,000 and £9,000 on the latter two respectively.

In the context of retirement savings, it’s normally Stocks and Shares ISAs that we refer to here, although Cash ISAs are also important to have in your saving toolkit. Generally, the money you pay into an ISA will be taxed beforehand, and as it’s paid out of net income, there’s no Income Tax due on the interest or dividends you receive.

Contrastingly, pensions aren’t taxed as you pay the money in, because the government offers tax relief on pension contributions at your marginal Income Tax rate. For every £80 you pay in, therefore, your pension scheme can claim another £20 in tax relief – simply, a £100 contribution costs £80. Higher-rate taxpayers get a further 20% relief, meaning they only have to pay in £60 for a £100 contribution – likewise, those on 45% Income Tax can claim relief at 45%.

Anything over the basic rate of tax needs to be reclaimed via your individual tax return and are subject to eligibility. You will be charged Income Tax on pension withdrawals above the 25% tax-free cash entitlement, however.

The other main difference is that pensions can’t usually be accessed until you turn 55 (going up to 57 in 2028), whereas there is no age restriction on withdrawing money from an ISA.

“Pensions tax relief provides tax-efficient growth and access to a proportion of tax-free cash, while your ISA gives you another allowance entirely, so it makes sense to use both,” says Clark.


Making use of both helps savers to navigate between the annual and lifetime pension allowances.

The annual pension allowance is the amount you can contribute in a tax year while still benefitting from tax relief. This is currently £40,000 but reduces by £1 for every £2 of adjusted income you earn over £240,000. The lifetime allowance is the maximum amount you can accumulate over your lifetime without potential charges, currently frozen at £1,073,100.

To make the most of this from a tax perspective, it’s best to consider where the two products fit into your overall financial plans. A financial adviser can be of particular value here, helping to answer your questions such as which pot to access first in retirement and what that could mean for your taxes.

“When it comes to all the allowances and limits, the adviser will have a watching brief over those and guide you along the best course of action,” says Clark. “For example, your plan might be to access the ISA before the age of 55, especially if you want to retire before then. It depends on your future plans, and that’s where an adviser can help you map out which products to use.”

They can also help make sure you’re investing in a way best suited to achieving the goals you’re aiming for. “If people aren’t sure which to use, that tells us they’re lacking a plan,” says Clark. “An adviser will sit down with you and work out what you want to achieve and the purpose of the savings you’re putting aside.”

If you’d like to find out more, get in touch with a Wellesley adviser today!

The value of an investment with Wellesley Wealth Advisory will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.

A Stocks and Shares ISA does not have the security of capital associated with a Cash ISA.

The levels and bases of taxation and reliefs from taxation can change at any time and are dependent on individual circumstances.

Please note that Wellesley Wealth Advisory does not offer Cash, Innovative or Lifetime ISAs.

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