ISA vs pension — where should the next pound of pay go?

The same slice of gross salary, two routes: into a pension by salary sacrifice (the full amount goes in; taxed on the way out, with 25% tax-free), or taken as pay — taxed and NI'd on this year's actual bands — and saved into an ISA (tax-free forever after). Your figures never leave your browser.

The trade-off in plain English

The pension's edge is arithmetic: sacrifice puts the whole gross pound to work, a quarter comes back tax-free, and most people pay a lower tax rate in retirement than they saved at while working. A higher-rate earner who retires as a basic-rate taxpayer keeps roughly 85p of every gross pound via the pension against about 58p via the ISA route — before any employer NI pass-on sweetens it further.

The ISA's edge is everything that is not arithmetic: your money at any age (pensions are locked until at least 55, rising to 57 in 2028), no tax to think about on the way out, no interaction with allowances — and no risk that a future government changes pension tax rules between now and your retirement. Contributions are capped at £20,000 a year.

The honest answer for many people is both: pension at least to any employer match, ISA for money you may need before 57. The full Hundred Summers plan runs this on your real lifetime tax position — including the year-by-year tax on drawdown, the personal allowance in retirement, and the lump-sum allowance — rather than two single rates.