Key takeaways
- At basic rate in the 2026 to 2027 tax year, £1,000 of gross salary puts £900 into a pension or £720 into an ISA. The pension starts £180 ahead.
- Draw it at a 20% retirement band and the pension's £900 is worth £765 against the ISA's £720 — a £45 edge, and all of it is the 25% tax-free cash.
- Basic rate now and a 40% retirement band reverses the result: £630 from the pension against £720 from the ISA, a £90 gap the ISA wins.
- Higher rate in and higher rate out still favours the pension, £677 against £580, or 16.7%. Nothing in that depends on your tax rate falling.
- A pound-for-pound employer match lifts the pot to £1,800, worth £1,530 after a 20% retirement band — 2.1 times the ISA's £720.
The pension is ahead unless your retirement tax band is higher than today's
ISA or pension? The question gets answered with slogans, so here it is answered with the arithmetic instead — and with the one number the arithmetic actually turns on, which is the Income Tax rate you'll pay when you take the money out.
Take one marginal £1,000 of gross salary in the 2026 to 2027 tax year. For a basic-rate taxpayer, routing it to a pension puts £900 in the pot. Routing it to an ISA puts £720 in the ISA. The pension starts £180 ahead, and that £180 is Income Tax you haven't paid yet.
That head start survives withdrawal whenever your retirement band is no higher than your working band. It doesn't survive a retirement band that's higher. Everything else — an employer match, the 60% band, the years before 57 — pushes the answer further one way or the other, and the sections below work through each of them.
Where the £900 and the £720 come from
Both routes start with the same £1,000 on your employer's payroll. What differs is which taxes get to it.
GOV.UK puts the 2026 to 2027 Personal Allowance at £12,570, with the basic rate at 20% from £12,571 to £50,270, the higher rate at 40% up to £125,140, and the additional rate at 45% above that. Employee National Insurance runs at 8% on weekly earnings between £242.01 and £967, and 2% above £967.
The ISA route pays both taxes first. A basic-rate taxpayer hands over £200 of Income Tax and £80 of National Insurance, so £720 arrives. After that, nothing else is due. GOV.UK is flat about it: you do not pay tax on "interest on cash in an ISA" or on "income or capital gains from investments in an ISA", and there's no tax when you withdraw.
The pension route pays the National Insurance too. Relief covers Income Tax only, so that £80 goes either way. Contribute £900 from the £1,000 and the sums close exactly: £900 into the pension, £20 of Income Tax on the £100 of pay left behind, £80 of National Insurance, and nothing in your pocket. The two routes to that £900 — a deduction before tax, or a net payment your provider grosses up — are set out in our guide to pension tax relief at source versus net pay.
So it's £900 against £720 from the same £1,000, with both pockets left empty. At higher rate, where National Insurance drops to 2%, the pension takes £967 and the ISA takes £580. At additional rate it's £964 against £530.
Withdrawal keeps 85% of the pension at a 20% band and 70% at 40%
A pension is taxed on the way out, but not all of it is. You can usually take up to 25% of a pension as a tax-free lump sum, capped at £268,275 — the lump sum allowance. The other 75% is taxed as income at whatever band you're in that year.
That gives the pension a simple withdrawal multiplier. At a 20% retirement band the pot keeps 85% of its value. At 40% it keeps 70%. At 45% it keeps 66.25%.
Run it through the three working bands. The basic-rate saver's £900 comes out as £765 at a 20% band and £630 at 40%. The higher-rate saver's £967 comes out as £822 and £677. The additional-rate saver's £964 comes out as £819, £675 and £638 at 20%, 40% and 45%. The chart sets each of those against the ISA figure for the same taxpayer.
Matched bands still favour the pension, and the tax-free quarter is the whole reason
The most common objection to any of this is that a higher-rate taxpayer who stays higher-rate in retirement gains nothing from a pension, because the relief going in is cancelled by the tax coming out. The arithmetic disagrees, and it's worth seeing why.
Higher rate in, higher rate out, the pension delivers £677 against the ISA's £580. That's £97, or 16.7%, and none of it comes from a fall in your tax rate. It's the quarter that never gets taxed, which drops the effective tax on the whole pot from 40% to 30%. At 20% both ways the gap is £765 against £720. At 45% both ways it's £638 against £530, or 20.5%.
Take the tax-free quarter away and the result is exact: at basic rate the pension would deliver £720 against the ISA's £720, and at higher rate £580 against £580. A dead heat, both times. Relief in and tax out at the same rate cancel perfectly, because multiplying by the same fraction in either order gives the same answer. The 25% is the entire edge, which is why the edge grows with the rate you're excused from: 6.3% at basic rate, 16.7% at higher, 20.5% at additional.
Basic rate now and higher rate later is the case where the ISA wins
There is a case where the pension loses on tax alone, and it's not the one usually named. A basic-rate saver whose retirement income lands in the 40% band takes £630 from the pension against £720 from the ISA. The ISA is ahead by £90, or 12.5%.
The mechanism is plain. You took relief at 20% and paid 40% on three-quarters of the money. The tax-free quarter cushions that, but £180 of relief against £270 of tax is still a loss of £90.
People land there more often than the slogan suggests. Someone early in a career that later pays well. Someone with a defined benefit pension and a full State Pension already filling the basic-rate band. Someone who draws a large pot over a short period rather than a long one, pushing their own annual income up a band. The retirement band is a forecast about a tax system decades away, and that's the assumption doing all the work here.
A full State Pension leaves £22.40 of Personal Allowance
Comparisons like this often assume a 0% retirement band, where the whole pension comes out inside the Personal Allowance. That assumption deserves a check.
The full rate of new State Pension is £241.30 a week. A full year of it comes to £12,547.60, against a Personal Allowance of £12,570 — leaving £22.40 of headroom, and nothing else can be drawn tax-free underneath it.
So the 0% column belongs to people whose State Pension record is short of the full rate, or who draw a private pension before State Pension age. For everyone else, 20% is the realistic floor, and the basic-rate pension edge is the £45 case rather than the £180 one.
An employer match settles the question before tax gets involved
Every figure so far assumes no employer money. Automatic enrolment guarantees some: since April 2019 the statutory minimum has been 3% from the employer and 8% in total, on qualifying earnings between £6,240 and £50,270.
Match the basic-rate saver's £900 pound for pound and the pension holds £1,800 against the ISA's £720. At a 20% retirement band that's £1,530, or 2.1 times the ISA. At a 40% band it's £1,260, still 1.75 times. There's no retirement tax band that closes a gap that size, because the gap isn't a tax argument — it's money the ISA route never receives at all.
Where an employer will pay the match into a pension and nowhere else, the tax comparison stops being the binding question. It only becomes binding again for contributions above whatever the match covers.
Between £100,000 and £125,140 the arithmetic stops being close
The Personal Allowance drops by £1 for every £2 of adjusted net income above £100,000, and hits zero at £125,140. Across that £25,140 stretch the effective Income Tax rate is 60%. HMRC's own guidance confirms that pension contributions paid gross come off adjusted net income, so a contribution made there restores the allowance it protects.
From £1,000 of gross salary in that band, the ISA receives £380 and the pension receives £950. At a 20% retirement band the pension delivers £808 — 2.1 times the ISA. At a 40% band, £665, or 1.75 times. The 60% band is the single place where the two wrappers are furthest apart, and it's a band of income rather than a type of person, so it can catch someone for one year and never again. The full set of thresholds sits in our UK investment tax rates and allowances table.
What the ISA buys is the years before 57
None of the pension figures are available early. HMRC's Pensions Tax Manual states that "Since 6 April 2010 the normal minimum pension age is 55" and that "From 6 April 2028 the normal minimum pension age will increase to age 57". An ISA carries no such gate: you must be 18 or over to open one, and the money comes out when you ask for it.
That gap is the ISA's strongest argument, and it isn't a tax argument. A 35-year-old weighing a £20,000 ISA subscription against a pension contribution is weighing a known 16.7% tax edge against 22 years of not being able to reach the money.
Reaching it early also has a price on the pension side. Taking taxable income flexibly from a pension cuts the annual allowance from £60,000 to the £10,000 money purchase annual allowance, which caps what can go back in afterwards. Our guide to the pension annual allowance, the taper and carry forward covers how that interacts with a high income, and the ISA rules on flexibility, transfers and death cover the ways an ISA is less simple than it looks.
The limitations of this arithmetic, stated plainly
These figures are England, Wales and Northern Ireland rates for 2026 to 2027. Scotland runs different bands and a different relief claim, so every number above moves there. Rates and thresholds are also legislated, not permanent.
The comparison assumes the same investments in both wrappers, which is what lets investment growth cancel out of the sums — a pension holding a different portfolio from the ISA breaks that immediately. It ignores platform and fund charges, which differ by provider rather than by wrapper. It assumes contributions inside the £60,000 annual allowance and no more than 100% of earnings, and it assumes no salary sacrifice; sacrifice changes the National Insurance side of the pension route and is worked through in the salary sacrifice National Insurance arithmetic.
It also assumes the 25% tax-free entitlement holds in full. Above a pot of £1,073,100 the £268,275 cap bites and the tax-free share falls below 25%, which shrinks the pension's edge for the largest pots. And the retirement band is an assumption, not a measurement. Every result here is a conditional statement about a rate nobody knows.
What would change the conclusion
Cut or remove the 25% tax-free lump sum and matched bands become an exact tie — £720 against £720 at basic rate, £580 against £580 at higher rate. The pension's entire advantage at matched rates is that quarter, so it's the one rule change that would rewrite the comparison rather than adjust it.
Raise your own retirement band above your working band and the sign flips: £630 against £720 is the arithmetic of relief at 20% and tax at 40%. That's a forecast about your future income, and it's the only input that changes the direction of the answer rather than its size.
Remove the employer match and the 2.1-times gap collapses back to the £45 that tax alone provides. The match is the largest single term in the whole comparison, and it's the term least often stated in it.
The thing worth tracking, then, isn't the wrapper. It's the retirement band you're assuming — because at 20% the basic-rate pension is £45 ahead, and at 40% it's £90 behind, on the same £1,000. LedgerTouch shows what's in each wrapper; the band you'll pay on the way out is the number you have to supply yourself.