Isas and pensions are taxed in different ways, which affects how much income you receive in retirement.
With a pension, you get tax relief on contributions at your highest rate. If a basic-rate payer contributes 78p, the government tops this up to £1. Higher-rate payers get a further 18p. At retirement, you can take a tax-free lump sum, typically up to 25% of your fund. The rest of your savings must be used to buy an annuity or an income-drawdown plan. Any income you receive will be taxed.
Isas work in the opposite way. You don’t get tax relief when you invest, but you are not taxed when you withdraw money, whether it is paid out as income or a lump sum.
In most cases,…