Pension vs ISA Calculator

Tax engine. Marginal rates calculated from 2026/27 bands (frozen to 2030/31): personal allowance £12,570, basic rate to £50,270 (20%), higher rate to £125,140 (40%), additional rate above (45%). PA tapers £1 per £2 between £100,000 and £125,140 — making the £100k–£125,140 zone effectively 60% income tax. Employee NI: 8% to £50,270, 2% above. Employer NI: 15% above £5,000.

ISA accumulation. Contributions paid from net (post-tax) income. Pot grows tax-free. pot[t+1] = (pot[t] + £20k) × (1 + g).

Pension accumulation. £20k gross in. Net cost depends on funding mode and tax band:

• Salary sacrifice (pre-Apr 2029): net cost = gross × (1 − marginal IT − employee NI). Higher rate: 58p per £1. If employer adds back its 15% NI saving, pot grows on £20k × 1.15 each year.
• Salary sacrifice (post-Apr 2029, contributions > £2k): first £2k retains full NI relief; above £2k loses NI relief on both employee and (if relevant) employer side. For a higher-rate earner contributing £20k, net cost rises from £11,600 to ~£11,960 a year.
• Personal contribution (relief at source): net cost = gross × (1 − marginal IT). No NI relief. Provider grosses up at 20% automatically; higher/additional rate relief claimed via tax return.

Retirement drawdown. 25% tax-free up to LSA cap (£268,275). Remainder treated as income, taxed at the bands above (no NI on pension drawdown). ISA withdrawals tax-free. Sustainable withdrawal calculated to deplete to planning age at the chosen growth rate.

Death scenarios. Three regimes modelled:

• Die before 75, pre-Apr 2027: pension passes IHT-free and income-tax-free to beneficiaries. ISA in estate (40% IHT above NRB+RNRB).
• Die before 75, post-Apr 2027: pension in estate (40% IHT) but beneficiary takes remainder tax-free → keeps 60%. ISA: 40% IHT.
• Die after 75, post-Apr 2027: 40% IHT first; remainder taxed at beneficiary's marginal income tax rate. With double-tax mitigation (the income tax base reduced by the IHT amount), effective tax tops out at ~67% for an additional-rate beneficiary.

Real vs nominal. When "Today's money" is selected, growth and bands are deflated by inflation, so all £ figures are in current purchasing power.

• Tax bands held flat in nominal terms — frozen until April 2031, then inflated.
• ISA allowance £20,000/year. Pension annual allowance £60,000 (no taper modelled for very-high earners).
• LSA £268,275 enforced when 25% tax-free lump sum is taken.
• NRB £325,000 + RNRB £175,000 (£500k individual). RNRB tapers above £2m estate — not modelled.
• Spouse exemption not modelled (assumes inheritance to non-spouse).
• Investment growth applied annually at year-end on contributions.
• Charges/fees not modelled — apply identically to both wrappers anyway.
• State pension not modelled (would shift income into both bases equally).
• April 2027 reduction in cash-ISA cap to £12k under-65 not modelled (overall £20k still applies via S&S ISA).

This is a planning tool, not advice. Tax rules can change; always cross-check with a qualified adviser before acting.

April 2027 — pensions in IHT estate. From 6 April 2027, unused pension funds and most lump-sum death benefits join the estate for IHT. Spouse and registered-charity transfers remain exempt. Personal representatives become responsible for reporting and paying the IHT.

April 2027 — cash ISA limit. Cash-ISA subscription reduces to £12,000 for under-65s (overall £20,000 ISA allowance unchanged via stocks & shares ISA). Not modelled here as the headline allowance is unchanged.

April 2029 — £2,000 salary sacrifice NI cap. Only the first £2,000 of pension contributions made via salary sacrifice each year qualify for full NIC relief. Above that, employee NI (8% / 2%) and employer NI (15%) apply. Modelled here for any year ≥ 2029.

April 2031 — frozen tax thresholds extended. Personal allowance, basic rate limit, higher rate threshold, and additional rate threshold all held flat in cash terms — fiscal drag pulls more retirement income into higher bands over time.