Pensions and ISAs are both powerful tools for retirement saving – but some may wonder which is the best one to prioritise putting their funds in. Recent market volatility, sparked by Donald Trump’s tariffs, rattled both pensions and stocks and shares ISAs, raising fresh questions about where is safest to save your money. Ian Futcher, financial planner at wealth management firm Quilter, says pensions tend to be the main option throughout every decade of saving for retirement. Speaking to The i Paper, he said: “Pensions come with benefits that ISAs, and specifically Lifetime ISAs (LISA), simply cannot match – such as government tax relief and employer contributions. “As a result, the burden on you is far less when saving into a pension compared to an ISA.”

Pensions or ISAs?

He also noted pensions offer greater saving capacity, with an annual allowance of £60,000 versus £20,000 for ISAs and just £4,000 for LISAs. However, he highlighted the important role ISAs play throughout someone’s life, saying: “ISA withdrawals are tax-free, compared to only 25 per cent of your pension pot.” Those who may wish to save for other life events, such as buying a property, will benefit for maximising their ISA allowances, including cash ISAs which have a yearly limit of £20,000. Here, with the help of Quilter, we explore how pensions and ISAs compare at each stage of life – and how using both can help build a more resilient retirement pot. (Photo: Gareth Fuller/PA)

Your 20s

This is a time when some people may not be able to save as much, however, if they can put aside some funds, they can start building positive savings habits for life. “We are often just starting out on our savings journeys in our twenties,” Futcher said, “and as such it is vital to establish an emergency fund held in cash.” He recommends saving around six months’ salary in an easy-access ISA to cover unexpected costs like job loss or car repairs during this time of your life. For first-time buyers, he said: “Saving for things such as a house deposit is best done via a Lifetime ISA.” LISAs can be opened by anyone aged 18 to 39 and offer a 25 per cent bonus on savings used for retirement or buying a first home. The maximum you can pay in is £4,000 per tax year and the government will give you a bonus worth £1,000. For the self-employed, who don’t benefit from employer contributions, Futcher also suggests a LISA “is potentially a good way to go” as the first £4,000 will receive a 25 per cent top-up from the government, compared to just 20 per cent in a pension if you are a basic rate taxpayer. But pensions should not be ignored, he said, adding: “Many of us will get our first pension when we enter the workforce in our twenties, and this represents a great opportunity to grow wealth over the long term.” He advises investing in higher-risk assets like equities to make the most of time in the market.

Your 30s

With rising incomes and growing families, your thirties are about balancing long-term saving with short-term needs. Futcher says this is a key time to boost pension contributions, especially if you move into a higher tax bracket. He said: “While this means higher rates of tax, it also means greater tax relief on your pension.” Even basic-rate taxpayers benefit, he said, as “investing annually via a pension… helps to compound returns over the years”. But with expenses like school fees and holidays, more accessible savings are also important. “Our thirties often represent the start of growing families,” Futcher said, pointing to ISAs as useful tools for flexibility. He also recommends Junior ISAs (JISA): “Investing in a JISA at an early age can have a huge impact on your child’s life.” The JISA limit is £9,000 for the tax year 2025-26. Laura Suter, director of personal finance at AJ Bell, agrees that pensions and ISAs can work together – pensions for retirement, ISAs for near-term goals. (Photo: Virojt Changyencham/Getty/Moment RF)

Your 40s

Your forties are a crucial decade to take stock and ramp up retirement savings. At this point, you can no longer open a LISA and as such you can no longer get a government bonus. Futcher said: “When saving for retirement, pensions become your only option – although they were already a superior way of saving for retirement up to this point anyway.” This is a good opportunity to review your arrangements to ensure you are on track to build-up a suitable pension pot. If not, he said “now is a good time to boost it with lump sum payments, ensuring you benefit from tax relief and the long-term growth still on offer”. While pensions should be a priority, cash ISAs and stocks and shares ISAs still play a role – especially for goals like supporting older children or planning for big life events.

Your 50s

The focus shifts from building to preparing for retirement in your fifties. It is also the decade you can start withdrawing from your personal pensions without incurring any tax charges. Futcher advises reviewing how you will draw income at this stage, warning that “withdrawing from your pension first can trigger tax charges”, so having well-funded ISAs can help manage your tax bill. You will not usually pay any tax if your total annual income adds up to less than your personal allowance of £12,570. You can also usually take up to 25 per cent of the amount built up in any pension as a tax-free lump sum with the most you can take being £268,275. He also suggests keeping some lower-risk assets ready for early drawdown, allowing equities more time to grow. You can only make withdrawals from a LISA at 60. Any withdrawals prior to that come with a penalty that means you end up losing more than just the government bonus that was added. Therefore, “it is important to leave a LISA untouched during this decade, even if you have given up work”. (Photo: Mark Richardson/Alamy)

Your 60s

With retirement in sight, Futcher says this is the time to “take stock of where your pension is at… and what you can do about any shortfall.” He recommends getting financial advice to make informed choices before giving up regular income. You might start drawing from your pension while still working, but Futcher warns this reduces how much you can contribute annually – from £60,000 to £10,000 – known as the “money purchase annual allowance” (MPAA). (Photo: Rosemary Calvert/Getty/Stone RF)