ISA vs SIPP Calculator

Why the ISA vs SIPP decision matters

The ISA and the SIPP are the two most powerful tax wrappers available to UK workers, but they shelter your money in fundamentally different ways. An ISA lets you keep what you already earned and grow it tax-free for the rest of your life. A SIPP lets HMRC top up every contribution at your marginal rate, then taxes most of the proceeds at your marginal rate in retirement. The wrapper you pick is rarely a binary choice; it is a question of split, and that split depends on three things: your current marginal tax band, whether your employer matches pension contributions, and when you actually need the money.

Most financial media treats this as ISA vs SIPP, winner takes all. That framing helps nobody except the platforms that sell both. The honest answer for almost every UK worker is to hold both, in a specific order, with the mix shifting as your tax band and retirement timeline change. The calculator above shows you the after-tax pound figures for one wrapper against the other; the sections below explain when each wrapper actually wins.

How the ISA works

An ISA is funded from money you have already paid income tax and National Insurance on. There is no upfront tax relief. In exchange, everything inside the wrapper grows free of capital gains tax and dividend tax, and every pound that comes back out is tax-free, at any age, for any reason. The annual allowance is £20,000 for the 2026/27 tax year across all your ISA types combined. If you do not use the allowance by 5 April, it disappears - there is no carry-forward.

Inside that £20,000 allowance you can hold up to £4,000 in a Lifetime ISA, which adds a 25% government bonus on contributions until age 50. The LISA has strings attached (under 40 to open, locked until 60 or a first home, 25% penalty on early withdrawals for any other purpose), but for first-time buyers under 40 it is functionally equivalent to basic-rate pension relief without the lock-in to 57. For full ISA rules and current allowances, see the gov.uk ISA guidance.

How the SIPP works

A SIPP is the opposite shape. Contributions get tax relief at your marginal rate on the way in. Basic-rate taxpayers contribute £80 and the provider claims £20 from HMRC, giving you £100 in the pension. Higher-rate (40%) and additional-rate (45%) taxpayers get the same basic-rate gross-up at source, then claim the rest through self-assessment, so £100 in the pension actually costs them £60 or £55 net. The annual allowance is £60,000 for 2026/27, or 100% of relevant earnings if lower, with three years of carry-forward available if you were already in a pension scheme.

The exit is where the SIPP gives back some of that upfront gift. Money is locked until age 55, rising to 57 from 6 April 2028. When you access it, the first 25% is tax-free up to a lump sum allowance of £268,275. The remaining 75% is taxed as income at your marginal rate in retirement. The whole strategy is a bet on tax-rate arbitrage: pay tax later, hopefully at a lower band, on three-quarters of the pot.

The marginal-rate arbitrage that decides the answer

Strip out the access age and the lump sum and you are left with a single question: is your marginal tax rate higher now than it will be in retirement? If yes, the SIPP wins, because you defer tax from a high band to a low one. If your retirement rate matches your current rate, the SIPP still wins narrowly thanks to the 25% tax-free lump sum. If your retirement rate is higher than your current rate, the ISA wins outright.

For most UK workers the SIPP wins on this maths alone. A higher-rate taxpayer earning £60,000 today is very unlikely to be drawing £50,000 a year of taxable pension income at 67. The state pension plus a moderate drawdown usually lands people back in the 20% band in retirement. That is a 40% in, 20% out trade - hard to beat. But the calculation flips for younger basic-rate earners on track for a higher-rate retirement income, or for people who plan to keep working in any meaningful way after taking their pension.

The 60% tax trap: the best SIPP deal in the country

There is one income band where the SIPP is so good it is almost a different product. Earn between £100,000 and £125,140 and you lose £1 of personal allowance for every £2 of income over £100,000. The effective marginal tax rate in this band is 60%, or 62% once you factor in 2% National Insurance on income above the upper earnings limit. Pension contributions reduce your adjusted net income and reclaim that lost personal allowance pound for pound.

For workers in this band, every £1,000 of SIPP contribution effectively costs about £380. No ISA can come close. If you are anywhere in the £100k to £125,140 range, your first priority after capturing the employer match should be to use SIPP contributions to drag your adjusted net income back under £100,000. Run the actual numbers through the 60% tax trap calculator before you decide on your ISA contribution for the year.

The employer match comes before either wrapper

Before you even start the ISA vs SIPP comparison, capture your full employer pension match. Every pound your employer matches is a 100% guaranteed return on day one, followed by years of tax-free growth. Skipping the match to fund an ISA instead is one of the most expensive mistakes a UK worker can make. The pension match calculator shows what an unclaimed match costs over a career; the numbers are larger than most people expect.

The match is not optional in a financial sense. It is the highest-priority pound in your whole budget. Only after the full match is captured does the ISA vs SIPP question become live for any additional savings.

Access age and the bridge to retirement

The SIPP locks your money until 55 today, 57 from April 2028. If you want to stop working before then, you need accessible money to cover the bridge years. That is what the ISA is for. A worker planning to retire at 52 needs five years of expenses sitting in an ISA before the pension unlocks. No amount of SIPP tax relief makes up for not being able to touch the money when you need it.

This is also the strongest argument against the conventional advice to pour everything into the SIPP once you are a higher-rate earner. If financial independence before 57 is on your roadmap, ISA contributions are not optional flexibility; they are the only legal way to fund the bridge. The right mix changes with your retirement timeline, not just your tax band.

Worked examples

The right question is "what split", not "which wrapper"

The conventional ISA vs SIPP framing forces a false binary. The honest framework looks like this: capture every pound of employer match first, regardless of tax band. Then, if you are in the 60% trap, push into the SIPP until you escape it. Then build the ISA you need for bridge years and emergencies. Then return to the SIPP for the rest of your long-term retirement savings, with the mix tilting harder toward the SIPP as you age and your lock-in window shrinks.

That sequence captures the best of both wrappers without leaning on a single tax-rate assumption that might not hold for 30 years. The full ISA vs pension guide walks through the priority order in more detail and includes an age-based heuristic for the mix.

Frequently asked questions