SIPP or ISA: where the next contribution should go
A pension gives relief now and taxes withdrawals later; an ISA does the reverse. The gap between your tax rate now and in retirement is what decides the answer.
Figures stated for the 2026/27 UK tax year. Content last checked against official sources on .
What this calculator does
- Compares the same net monthly contribution routed into a SIPP and into an ISA.
- Applies tax relief on the way into the pension and Income Tax on the way out.
- Accounts for the 25% tax-free lump sum.
- Reports which wrapper leaves more in your hands after tax.
How the calculation works
Both wrappers grow free of tax internally, so the difference is entirely about when tax is charged. Money into a SIPP is grossed up by basic rate relief immediately, and a higher rate taxpayer can reclaim more, so a given amount of take-home pay buys a materially larger invested balance. That advantage is repaid later, because withdrawals above the tax-free lump sum are taxed as income. An ISA gets no relief going in, but nothing at all is taxed coming out. The arithmetic therefore turns on rate arbitrage: contributing at a 40% marginal rate and withdrawing at 20% captures the difference, while contributing and withdrawing at the same rate makes the two wrappers nearly equivalent apart from the tax-free lump sum, which tips it towards the pension. The comparison here assumes the higher rate relief is actually reinvested into the SIPP; if it is spent instead, much of the pension's advantage disappears.
The rule
SIPP net value = (grossed-up contributions compounded) × (25% tax-free + 75% taxed at the retirement rate). ISA net value = net contributions compounded, taxed at nothing.
Step by step
- Gross up the net contribution by basic rate relief, and add reclaimed higher rate relief if it is reinvested.
- Compound both the SIPP and the ISA balances at the same return.
- Take 25% of the SIPP tax-free, capped by the lump sum allowance.
- Tax the remaining SIPP balance at the expected retirement rate.
- Compare the two net figures.
Worked example
A higher rate taxpayer saving £500 net a month for twenty-five years at 6%, expecting to be a basic rate taxpayer in retirement, reinvesting the tax refund into the SIPP.
What was entered
| Monthly net contribution | £500 |
|---|---|
| Years until retirement | 25 |
| Expected annual investment return | 6% |
| Current income tax band | Higher |
| Expected retirement tax band | Basic |
| Reinvest tax refund into SIPP? | Yes |
The arithmetic
- £500 of take-home pay buys £625 gross in the SIPP after basic rate relief, and the reclaimed higher rate relief is reinvested on top.
- The same £500 buys exactly £500 of ISA.
- After twenty-five years at 6% the ISA is worth about £346,497, all of it accessible tax-free.
- The SIPP is worth about £577,495 gross — considerably more, because more was invested from the start.
- A quarter of that, £144,374, is taken tax-free; the remainder is taxed at the basic rate in retirement.
- The SIPP is worth about £490,871 net, roughly £144,374 more than the ISA.
- The advantage comes from contributing at 40% and withdrawing mostly at 20%.
What the calculator returns
| ISA value | £346,496.98 |
|---|---|
| SIPP value before tax | £577,494.97 |
| SIPP tax-free lump sum | £144,373.74 |
| SIPP value after tax | £490,870.72 |
| Difference in favour of the pension | £144,373.74 |
Key assumptions
- The tax refund on higher rate relief is reinvested into the SIPP rather than spent.
- The retirement tax band entered is the rate that will apply to withdrawals.
- Both wrappers earn the same return and carry no charges in this comparison.
- The whole SIPP is withdrawn under the assumed retirement rate rather than drawn gradually across bands.
Limitations
- The comparison ignores access. ISA money is available at any time; pension money is locked until the normal minimum pension age, which rises to 57 in April 2028. For anyone who may need the money sooner, that is decisive regardless of the arithmetic.
- It assumes a single retirement tax rate. In practice withdrawals can be spread across years and bands, often at a lower effective rate than assumed here.
- The State Pension is taxable and uses part of the Personal Allowance, which raises the effective rate on pension withdrawals for many people.
- Employer contributions are not modelled, and where they exist they usually dominate this comparison entirely.
- Charges, the annual allowance and its taper, and inheritance treatment all differ between the wrappers and are not covered.
- This is a projection, not advice. Pension decisions are difficult to reverse.
Common questions
Why does the pension win here?
What if I spend the tax refund instead of reinvesting it?
Does the ISA have any advantage at all?
Should I use one or the other?
Related calculators
- SIPP Growth Calculator — Model the SIPP side in detail, including the relief you have to claim yourself.
- Stocks & Shares ISA Growth Calculator — Model the ISA side on its own.
- Retirement Income Calculator — See what the pension would actually pay after tax in retirement.
- Salary Sacrifice Calculator — Salary sacrifice can beat both by saving National Insurance as well.
Official sources
Every figure in this guide was checked against the sources below. Where a source could not confirm a figure, it is marked as requiring verification rather than presented as settled.
- Tax on your private pension contributions: tax relief — GOV.UKPension contributions receive relief at your marginal rate
- Tax on your private pension contributions: lump sum allowance — GOV.UKUsually up to 25% of a pension can be taken tax-free, capped by a lump sum allowance of £268,275
- Individual Savings Accounts (ISAs) — GOV.UK (2026 to 2027 tax year)Overall ISA subscription limit £20,000, shared across cash, stocks and shares, innovative finance and Lifetime ISAs
- Pension Wise: free pension guidance — MoneyHelperFree impartial guidance on pension options, available from age 50