Should I invest in an ISA or a pension?

Ideally both. Get your employer’s full pension contribution first, as nothing beats free money. After that, a pension gives tax relief going in but is locked until your late 50s, while an ISA gives no relief but tax-free withdrawals at any time.

How much can I put in an ISA in 2026/27?

£20,000 across all your ISAs, of which up to £4,000 can go in a Lifetime ISA. Budget 2026 dropped the planned £12,000 Cash ISA limit, so all £20,000 can still go in cash.

A self-invested personal pension: a pension you open and manage yourself. You pay in from your take-home pay and the provider adds 20% tax relief, so £80 becomes £100; higher-rate taxpayers claim more through Self Assessment. It shares the £60,000 annual allowance with your other pensions.

Is a Lifetime ISA better than a pension for retirement?

For a basic-rate taxpayer the 25% bonus matches basic-rate tax relief, and withdrawals from 60 are tax-free. But you miss out on employer contributions, and a 25% charge applies if you need the money for anything else before 60. Higher-rate taxpayers usually do better in a pension.

Do I pay tax on investments outside an ISA or pension?

Yes, above the allowances. Gains over the £3,000 annual exempt amount pay Capital Gains Tax, and dividends over the £500 allowance are taxed at 10.75%, 35.75% or 39.35% from April 2026.

Where to invest: ISA, pension or Lifetime ISA?

Which account first? Fill them in this order, moving on when each is done.

1 Workplace pension At least enough to get your employer’s full contribution.
2 Lifetime ISA If you’re saving for your first home: a 25% bonus.
3 Stocks and Shares ISA Tax-free, and you can take money out any time.
4 More into your pension Especially if you pay higher-rate tax.
5 General investment account Once the others are full.

The accounts

Account	Tax break	Limit	Getting the money out
Workplace pension	Tax relief, plus your employer’s contributions	Usually up to £60,000 a year in all pensions	From 55 (57 from April 2028); 25% usually tax-free
Stocks and Shares ISA	Tax-free growth and withdrawals	£20,000 a year across all your ISAs	Any time
Lifetime ISA	25% government bonus	£4,000 a year (counts towards the £20,000), aged 18 to 39 to open	For a first home up to £450,000, or from 60
SIPP (personal pension)	Tax relief at your rate	Shares the £60,000 pension allowance	Same as other pensions
General investment account	None	No limit	Any time

Which order

Your workplace pension, at least enough to get your employer’s full contribution. See workplace pensions explained.
A Lifetime ISA, if you’re saving for your first home. See the first-time buyer guide.
A Stocks and Shares ISA for goals more than 5 years away.
More into your pension, especially if you pay higher-rate tax.
A general investment account once the others are full.

Pay off expensive debt and build an emergency fund first.

How the tax breaks compare

Pensions give you relief on the way in: £100 in your pension costs a basic-rate taxpayer £80, and a higher-rate taxpayer £60. On the way out, up to 25% is usually tax-free, up to £268,275 in total, and the rest is taxed as income. Paying in by salary sacrifice saves National Insurance too.

ISAs work the other way round: no relief going in, but everything that comes out, growth and income included, is tax-free, and you never have to report it to HMRC.

The Lifetime ISA sits in between. The 25% bonus is the same as basic-rate tax relief, and money taken out for a first home or from 60 is tax-free. Take it out for anything else and a 25% charge leaves you with less than you paid in.

If you expect to pay a lower rate of tax in retirement than now, a pension usually comes out ahead. If you might need the money before your late 50s, an ISA keeps it within reach.

Tax outside ISAs and pensions

In a general investment account, gains above the £3,000 annual exempt amount and dividends above the £500 dividend allowance are taxed. From April 2026, dividend tax is 10.75% for basic-rate taxpayers, 35.75% for higher-rate and 39.35% for additional-rate. Interest from bond funds and cash is taxed as savings income, at rates that rise by 2 percentage points from April 2027.

Rates can change at a Budget, so check after each one. The dividend tax calculator shows the tax on yours.

The pension calculator shows what your contributions could grow to, and the Lifetime ISA calculator what the bonus adds up to.