Pension or ISA? Where to save
26 Sept 2025
The short answer
You do not have to pick just one. Many people use both. Pensions are built for later life. ISAs are flexible for goals sooner and later. The right mix depends on your time horizon and how much access you want to your money.
Pensions at a glance
Pensions are for the long term. Your employer usually pays in too, and the legal minimum combined contribution is 8% of qualifying earnings, with at least 3% from your employer. That is free momentum for your savings. 
You normally get tax relief on what you pay in. Money is invested, so it can grow over time. You can usually start taking money from 55 (rising to 57 on 6 April 2028). Up to 25% is usually tax-free, within the current lump sum cap. The rest is taxed as income. 
ISAs at a glance
ISAs are simple and flexible. You can pay in up to £20,000 in 2025/26 across your ISAs. You can take money out whenever you want. In a flexible ISA, you can often put withdrawn cash back in the same year without losing allowance. Withdrawals are tax-free. 
There are Cash ISAs for shorter-term goals. There are Stocks & Shares ISAs for five years or more. Returns are not guaranteed.
Lifetime ISA (LISA) in brief
A LISA can help with your first home or later life. You can open one from 18 to 39, pay in up to £4,000 a year, and get a 25% government bonus (up to £1,000 a year). There is a 25% withdrawal charge if you take money out for other reasons. The LISA limit counts towards your £20,000 ISA limit. 
Which might suit which goal?
Later life first? A pension often wins because of employer contributions and tax relief.
Flexibility first? An ISA lets you access money any time without tax on withdrawals.
First home? A LISA can boost deposits if you meet the rules.
Can you use both?
Yes. Many people build a pension for retirement and keep an ISA for nearer goals or an extra buffer. If your employer matches contributions, consider securing the match first. Then you might top up an ISA for flexibility.
Key differences to remember
Access: Pensions are locked until later life. ISAs are accessible any time. 
Tax in: Pensions usually get tax relief. ISAs do not.
Tax out: ISA withdrawals are tax-free. Pension withdrawals are taxed after your tax-free portion. 
Checks before you choose
Rules and allowances can change. What you can pay in and how much tax relief you get depends on your circumstances. If you have higher earnings or have already taken money from a pension, special limits may apply. MoneyHelper has clear guides on allowances and options. 
How Penny can help
Penny helps you find and combine old workplace pensions into one easy app, so you can see everything in one place and stay on track. Penny is authorised and regulated by the Financial Conduct Authority.
This article is for information only. It is not personal advice. Investments can go down as well as up. If you are unsure, consider regulated financial advice.
