Pensions and ISAs

Pensions

• Unless you have a protected retirement age, you can access your pension savings from age 55, rising to 57 from 6 April 2028.

ISAs

• You can access your Stocks & Shares and Cash ISA savings as and when required (albeit there could be exit penalties if in a fixed term arrangement).
• Different rules apply to Lifetime ISAs, Help to Buy ISAs, Junior ISAs and Innovative Finance ISAs. The government is currently consulting on introducing a new First Time Buyer ISA, which would be offered in place of the Lifetime ISA once available. Until then, it remains possible to open a Lifetime ISA, and existing Lifetime ISA holders can continue saving under the current rules indefinitely.
• Help to Buy ISAs are closed for new applications, but existing holders can continue saving until November 2029 and claim the government bonus until 1 December 2030.

Pensions

• You can receive tax relief on contributions made into your pension, which can play an important part in boosting your retirement savings. The amount of tax relief you can claim depends on the method your contributions are being paid and the rate of Income Tax you pay. For example, if you are a basic rate tax-payer (20%) you will get tax-relief on your contributions of 20%. If you are a higher rate tax-payer (40%) you will get tax-relief of 40% on the amount of contribution in the higher rate. The same theory applies for an additional rate taxpayer (45%).
• Scenario: Peter, a basic rate taxpayer, pays £100 into his pension plan. Peter will receive tax relief of £25 on this contribution, resulting in a total pension input of £125.

ISAs

• You do not receive tax relief on contributions into an ISA arrangement.

Pensions

• Under normal pension rules, you can receive 25% of the value of your pot as tax-free cash, albeit there are scenarios where enhanced tax-free cash may be applicable. It is important to check the specifics rules of your pension scheme before accessing benefits, as individual schemes may vary.
• The remaining 75% of the value of the pot will usually be taken as income payments and taxed at your marginal rate of Income Tax, although a lump sum may be payable.
• From the 2024/25 tax year, two new allowances replaced the former Lifetime Allowance. The Lump Sum Allowance (LSA), currently set at £268,275, caps the total amount of tax-free cash you can take from your pension savings over your lifetime. The Lump Sum and Death Benefit Allowance (LSDBA), currently set at £1,073,100, limits the total amount that can be paid as a tax-free lump sum, both during your lifetime and on death. Any amounts above these allowances will be subject to Income Tax. If you have pre-existing pension protections in place, your personal allowances may differ, and it is important to check the position with your adviser before taking any benefits.
  Under current legislation, upon death, your pension savings are not usually part of your estate, so your chosen beneficiaries won’t pay any Inheritance Tax on the money received. However, under new legislation taking effect from 6 April 2027, unused pension funds will form part of your estate for Inheritance Tax purposes. Where a pension holder dies on or after 6 April 2027 and aged 75 or over, both Inheritance Tax and Income Tax may apply to the same pension funds. The unused pension may be included within the estate for Inheritance Tax purposes, and any income subsequently withdrawn by the beneficiary will normally be taxed at their marginal rate of Income Tax. This means the same pension pot could effectively face two layers of tax before the money reaches, or is retained by, the intended recipient. Where a pension holder dies on or after 6 April 2027 but before age 75, the beneficiary’s inherited pension income will usually remain free of Income Tax, although the unused pension funds may still be included within the estate for Inheritance Tax purposes. Given the potential impact, it is strongly recommended that pensions are reviewed in the context of wider estate planning.
• In the case of an annuity, the pension dies with the annuity holder, or on occasions the surviving spouse may inherit a portion of the annuity value. Capital protection and guarantees may be included.
• From 6 April 2027, pension death benefits may be subject to Inheritance Tax as part of the deceased's estate, regardless of age at death. Where a member dies before age 75, benefits can be paid as a lump sum or drawdown to the beneficiary free of Income Tax (though the LSDBA will still apply to lump sum payments and will be reduced by any tax-free cash previously taken). Where a member dies at age 75 or over, benefits paid as a lump sum or drawdown can be subject to Income Tax at the beneficiary’s marginal rate.

ISAs

• The total value of your ISA can be withdrawn without any tax implications.
• At death, your ISA is included as part of your estate, so your chosen beneficiaries may need to pay inheritance tax. In the case of a married couple, the surviving spouse can inherit the deceased’s ISA and this sum does not count towards their own personal ISA annual allowance.

Pensions

Pensions can be invested in a wide array of holdings including cash, funds and shares. It is important to ensure that you are invested in a manner which aligns to your attitude to risk, capacity for loss and any ethical, social and governance preferences that you may have.

ISAs

• ISAs can be invested in a wide array of funds and shares. It is important to ensure that you are invested in a manner which aligns to your attitude to risk, capacity for loss and any ethical, social and governance preferences that you may have.
• You can also hold a Cash ISA, which as the title implies, is held as cash.

Pensions

• For the 2026/27 tax year, the standard pension annual allowance is £60,000. This is the maximum that can usually be paid into pensions each year before a tax charge may apply. If you are making personal contributions, tax relief is normally limited to 100% of your relevant UK earnings. Your allowance may be lower if you are a high earner or if you have already flexibly accessed pension savings.
• If you are a non-earner, the maximum you can contribute into a pension each tax year is £3,600 gross.

ISAs

• The limit for ISAs in the 2026/27 tax year is £20,000. It is important to note that £20,000 is the limit regardless of how many ISAs you may have. For example, if you hold a Cash ISA and a Stocks & Shares ISA, you could contribute £10,000 into each, totalling £20,000. You could not put £20,000 into each in the same tax year.
• Please note that from 6 April 2027, the annual subscription limit for a Cash ISA will reduce to £12,000 for investors under the age of 65, while the overall ISA limit of £20,000 will remain unchanged. For investors aged 65 and over, the Cash ISA limit will remain at £20,000.

Pension

• Pensions are designed for the long-term, helping you save for retirement. If it is likely you will need to access your money in the short term, then placing money into a Pension may not be appropriate.

ISAs

• ISAs can be used for the short, medium and long term. If you require money in a short period of time, a Cash ISA can be useful to hold this sum. For investment horizons of five years or longer, it can be beneficial to use a Stocks & Shares ISA with the aim of benefitting from investment growth on the funds within.

As you can see, pensions and ISAs are both very powerful and valuable tools when it comes to financial planning. Each has similar characteristics, but also important differences and how you choose to invest your money will be specific to your individual circumstances and requirements.

There are, of course, other variables that should be considered, and pensions in particular can be complex and may require technical planning.

We always recommend seeking regulated independent financial advice when deciding when or how to invest your money to ensure it is suitable for your needs and objectives over the short, medium and long term.

The value of your investment and any income from it can go down as well as up and you may get back less than you originally invested, especially in the early years. The Financial Conduct Authority does not regulate tax or estate planning.

The information contained within this article is based on our understanding of legislation, whether proposed or in force, and market practice at the time of writing. Levels, bases and reliefs from taxation may be subject to change.