Pension or ISA? How to decide where to put your savings

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Kirsty Kerr

February 09, 2022

6 mins read

When you’re saving your hard-earned money, it’s important to make sure you find the right place for it to help achieve your short and long-term goals. Savings, pension plans and other investments can all offer a different mix of flexibility, accessibility, potential for growth and tax benefits. Here’s what to consider.

When you think about ways to save for your future, you probably think about pension plans and Individual Savings Accounts (ISAs). But which could be right for you and your financial plans? Let’s start with understanding the differences.

Pension plans vs ISAs: what's the difference?      

Pension plans

A pension plan is a long term, tax-efficient way to save for your future. You pay money into your plan either with regular contributions or one-off payments or a combination of both. Your contributions are then invested, giving your money the opportunity to grow over time.

These days employers usually have to set up a workplace pension for you if you’re eligible and usually both you and your employer will contribute. At least 8% of your qualifying earnings will be paid in, with a minimum of 3% coming from your employer.

A great benefit of saving into a pension plan is that you get tax relief on what you save too, which gives your savings a further boost. You can find out more about how these tax benefits work here.

Usually you can access money from a modern, flexible pension from the age of 55, although this is due to rise to 57 from 2028. After that it’s up to you when and how you take your money. Some people take their money but keep working, others take some or all of it and retire and others leave their pension savings untouched – or a mix. 


Chances are you’ll have some savings goals you’d like to hit long before retiring. Perhaps you’re working towards something big like a home, education fees or a family wedding. The tax efficiency and flexibility ISAs offer can make them a great way to save for this kind of spending.

Cash ISAs let you earn a bit of interest on top of your savings, and usually allow you quick access to your money. Or for longer-term goals – generally five years or more – there are Stocks & Shares ISAs where your money is invested. You can find out more about how ISAs work on the Government website.

There are different types of ISA available, which are designed for different saving goals. For example, the Lifetime ISA can be used to save towards your first home or for retirement. You can find out more on the government’s Lifetime ISA page. Or, if you’re saving on behalf of children, a Junior ISA could be an option. You can find out more about Junior ISAs and some of the other options available on the MoneyHelper website.

It's important to remember that pension plans and Stocks and Shares ISAs are investments. The value of investments can go down as well as up and you could get back less than what was paid in.

So what’s the difference?

If you’re thinking about long-term savings, then you’re probably considering a pension plan or a Stocks & Shares ISA (S&S ISA). In this case the main differences are tax relief and when and how you can actually access your money. 

Tax relief is usually available for personal and third party payments to pension plans and can play an important part in boosting your retirement savings. The amount of tax relief you get depends on how your contributions are being paid and the rate of income tax you pay. For most of the UK, this means basic-rate taxpayers (who pay 20% income tax) get tax relief at the same rate. If you’re a higher-rate taxpayer you get up to 40% tax relief, and additional-rate taxpayers get up to 45%. Don’t forget you may need to claim back anything over 20% from the government depending on how your contributions are being paid.  

If you’re a member of some workplace pensions and your employer operates a net pay arrangement or offers salary sacrifice then we won’t be able to claim tax relief for you. This is because the tax adjustments will have been dealt with by your employer before the contributions are paid into your plan.

With S&S ISAs you can access your money at whatever age you choose, but with a pension you normally need to wait until you’re 55 (or 57 from 2028) to access your money. Any income or withdrawals you take from a S&S ISA are tax-free. With your pension you normally get 25% tax-free and then any withdrawals above that are subject to income tax. 

How to decide between a pension plan or a S&S ISA

Here’s a quick comparison between what S&S ISAs and pension plans have to offer when it comes to making the most of your money and saving tax efficiently:


Pension Plan


What are you saving for?


A pension is designed for long-term savings to help you save for retirement. For most people, you can currently access it from age 55 (rising to age 57 in 2028).

A S&S ISA gives you easier access to your money before age 55 and it’s designed for medium or long-term savings goals such as a house purchase or a car.

How can I boost my savings?


Your pension plan can benefit from tax relief which we talked about earlier. If you have a workplace pension plan then you can make the most of any employer payments too. Plus your pension plan is invested so it has the potential to grow over time.

Your S&S ISA is invested so it can benefit from the potential to grow and any personal contributions you make.

How much can I pay into a pension or ISA each tax year?

For most people the limit is currently £40k or 100% of your earnings, whichever is lower. Your allowance may be lower if you’re a high earner or if you’ve already started taking money from your pension savings.

You can currently save up to £20k each tax year. 

Will my money grow more in a pension or ISA?


Your pension plan is usually invested for longer so there’s more time to potentially grow. Don’t forget, tax relief gives your savings an extra boost too. However this is not guaranteed, the value of investments can go down as well as up.

In a S&S ISA you have the potential for tax-efficient investment growth. However this is not guaranteed, the value of investments can go down as well as up.

Will I pay tax when I take my money out?

You can normally take 25% of your pension savings tax free. You pay income tax on any further withdrawals or income you take above your personal allowance (currently £12,570 for the 22-23 tax year).

You don’t pay tax on any ISA withdrawals you take.

How is my pension or ISA passed on?


You nominate who you would like to receive your pension savings, sometimes tax free. You need to let your provider know as your Will doesn’t cover this. They normally take this into account when deciding who to pay your pension savings to.

You can leave your ISA to who you want in your Will. Your spouse or civil partner can continue to hold the investments or equivalent amount in an ISA, but if you leave them to anyone else they will become taxable.

Will my family pay inheritance tax on a pension or ISA?


Your pension savings aren’t normally part of your estate, so your loved ones won’t pay any inheritance tax.

Your ISA is included as part of your estate, so your loved ones may need to pay inheritance tax.

Don’t miss out on tax-efficient savings this tax year

Whichever option you choose, don’t forget that the 2022-23 tax year has just started and you have new allowances – including your pension annual allowance and your ISA allowance. So make sure you make the most of them.

Tax rules and legislation may change and your individual circumstances including where you live in the UK will have an impact on the tax you pay.

If you want to take the opportunity to top-up your Standard Life pension plan, you can do this online by logging in or registering for online services.

And why not try our simple pension calculator to see if your pension investments are on track for the future you want.

Still not sure which option is right for you?

It’s worth bearing in mind that whatever saving mix you choose isn’t set in stone, you can adapt where and how much you’re saving and investing as your needs and priorities change.

There’s a lot to think about so it might be worth considering taking professional financial advice before making any decision. If you don’t have your own adviser, you can find one in your area at There’s usually a charge for getting advice. 

The information here is based on our understanding in February 2022 and should not be taken as financial advice.

Standard Life accepts no responsibility for information in external websites. These are provided for general information.



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