Are ISAs or Pensions The Right Choice For Your Retirement Plan?

Your savings play a big role in shaping your retirement.

But it isn’t just a matter of putting money aside – it’s about making sure it works for you.

With the right financial products, you can build the comfortable, stress-free retirement that all hard-working Teessiders deserve. And choosing the right savings options is key.

Two of the most popular options are ISAs (Individual Savings Accounts) and pensions.

While both offer brilliant benefits, they serve different purposes in your retirement plan – and let’s face it, not everyone is born knowing how they work!

That’s where we come in.

In this blog, we’ll explain how ISAs and pensions work, how they complement each other, and how you can make the most of their tax-friendly features to keep more of your money.

Pensions vs ISAs: Which Has The Best Tax Benefits For Your Retirement?

Let’s start by looking at the tax benefits that come with each option, because understanding how they work can really make a difference to your retirement savings.

Pensions

Pensions are designed for long-term saving, and the tax advantages are one of the main reasons people choose them:

• Tax relief on contributions
  Every time you pay into your pension, the government adds a bit more, based on your income tax rate. For example, if you’re a basic-rate taxpayer and contribute £100, the government tops it up with an extra £25.
• Tax-free growth
  Your investments grow without being taxed along the way, which helps your pot build up faster over time.
• 25% tax-free lump sum
  When you access your pension, you can take 25% of the total amount completely tax-free.
• Taxable withdrawals
  Anything beyond the tax-free lump sum counts as income and may be taxed, so planning ahead is important. (And we can help with that.)

Want to stay on top of pension tax changes? Our blog, ‘What You Should Do About Pension and Tax Changes’, explains the latest updates and how they could impact your retirement.

ISAs

ISAs work a little differently to pensions, but they’re just as valuable – especially if you’re looking for flexibility later in life.

• Tax-free growth and withdrawals
  Everything you earn inside an ISA, and anything you take out, is completely tax-free. No extra forms, no surprise bills, just straightforward saving.
• Contribution limits
  For the 2025/26 tax year, you can save up to £20,000 across all your ISAs. If you have a Lifetime ISA (LISA), it has its own limit of £4,000, and you might even receive a top-up from the government.
• Flexible access
  Some ISAs let you take money out and put it back in during the same tax year without it affecting your allowance. These are known as flexible ISAs. This can be really helpful if your plans change and you need to dip into your savings. But not all ISAs work this way. For example, Lifetime ISAs and Junior ISAs have stricter rules and may charge you for taking money out. It’s always a good idea to check with your ISA provider to see if your account is flexible.

• Recent discussions on Cash ISAs
  There’s been talk of potentially capping annual contributions to Cash ISAs to encourage more investment in Stocks and Shares ISAs. While no changes have been confirmed, it’s a good idea to keep yourself informed.

Wondering how pensions and ISAs can work together to maximise your retirement savings? Check out our blog, ‘The Importance of Reviewing Your Retirement Plans Annually,’ to find out.

Comparing ISAs and Pensions: What’s Best For You?

Here’s a simple side-by-side comparison to help you weigh up the benefits:

Feature	ISAs	Pensions
Tax on Contributions	No tax relief	Tax relief at your marginal rate (e.g, 20%, 40%, 45%)
Contribution Limits	£20,000/year	£60,000/year (standard annual allowance) or up to 100% of earnings (whichever is lower); contributions above this may not receive tax relief.
Tax-Free Growth	Yes	Yes
Tax- Free Withdrawals	Yes	25% tax-free: remaining 75% taxed as income.
Access to Funds	Anytime (subject to provider terms)	From age 55+ (rising to 57 by 2028); 25% tax-free, rest taxed as income.
What They’re Best For	Flexibility, short to medium – term goals	Long-term retirement savings with tax advantages.

To find out more about Pension and ISA Tax Allowances and Reliefs, download a free copy of our ‘Your 2025/2026 Guide to Tax Allowances’.

Using Both: A Smart, Tax-Efficient Strategy

So, how do you make the most of both ISAs and pensions?

It’s all about balance.

Pensions offer long- term growth and a tax boost. ISAs provide flexible, tax-free access when you need it during retirement.

Here’s our top 3 tips to make the most of your retirement savings.

1. Start with your 25% tax-free lump sum from your pension
   This can boost your retirement income without moving you into a higher tax bracket.
2. Use ISAs to stay in a lower tax band
   After taking the lump sum, combine smaller pension withdrawals with ISA income to keep your total income below the threshold for higher tax rates.
3. Avoid crossing into higher tax brackets
   If your pension income is pushing close to a higher tax band, consider drawing from your ISA instead. This helps keep your taxable income in check.

And, delaying your State Pension could do more than just delay income, it could also help lower your overall tax bill in retirement. Curious how that works? We’ve explained it in detail here for you.

Stay Flexible As Life Changes

Life doesn’t always go according to plan, and that’s where the real value of using both ISAs and pensions comes in.

You get choice, flexibility, and more control over how and when you take your money – while keeping your tax bill in check.

From age 55, pensions open the door to more options, and if your situation changes along the way, your plan can change with you. Simple as that.

Thinking About Your Next Step?

At Joslin Rhodes, we know retirement isn’t one-size-fits-all.

That’s why we’re here to help you get the most out of both ISAs and pensions, without the stress or confusion.

Come Along To Our Free Workshop

Our Pension & Retirement Planning Workshop is a relaxed, friendly session where we walk you through your options and help you figure out what’s right for you.

You’ll leave with a clearer picture and some practical tips you can use.

Spaces are limited, so make sure to book your spot today here.

Got Questions? Let’s Chat

If you’re just starting to think about your future, discussing it with your partner, or trying to get to grips with retirement planning, we’re here to help make it easier.

Our friendly local Teesside team is on hand with advice that’s personal to you.

Get in touch today