Is setting up a pension still a better idea than a Stocks & Shares ISA?

07 July 2023

Question by Harriet

I don’t pay income tax as a Ph.D. student on a stipend, and I want to save for retirement. Is setting up a pension still a better idea than a Stocks & Shares ISA, even if I won’t necessarily get as significant a tax relief than if I were paying income tax?

Answered by Matthew Spence

Hi Harriet,

It's great that you're considering saving for your future, and both pensions and Individual Savings Accounts (ISAs) are excellent options for maximising tax efficiency.

Planning for retirement and understanding the range of available products, investment options, tax advantages, and employer benefits (current and future) can be complex. Several elements come into play when formulating a retirement savings plan, including financial literacy, investment experience, access to financial guidance, retirement objectives, personal preferences, and individual circumstances, among others.

Here are just two important areas to consider:

1. Tax Treatment:

For a pension, if an individual has no taxable income, the maximum annual contribution eligible for tax relief is £2,880. The contribution of £2,880 will be augmented by tax relief, resulting in a total annual payment of £3,600 into your pension scheme. It is important to note, this immediate tax advantage only applies if your chosen pension scheme claims tax relief (20%) at source. When you withdraw money from your pension during retirement, a pension is typically subject to income tax.

A stocks & shares ISA, on the other hand, does not offer tax relief on contributions. However, any growth and withdrawals from an ISA are generally tax-free.

2. Access to Funds:

Pensions have age restrictions on when you can access the funds, typically tied to the minimum retirement age (currently 55). Withdrawals made before this age may incur penalties, except in specific circumstances.

A stocks & shares ISA, on the other hand, provides more flexibility, as you can access your funds at any time without penalties.

It is important to be aware that pension and ISA rules are not set in stone and can undergo changes over time. Governments and regulatory bodies have the authority to modify pension and ISA regulations and legislation based on various factors, such as economic conditions, demographic shifts, or policy objectives. These changes can affect the eligibility criteria, contribution limits, tax treatment, retirement age, and other aspects of pension schemes and ISAs.

Answered by

Matthew Spence


I am an experienced financial adviser committed to helping individuals and families achieve their financial goals. With over 19 years of experience in the financial industry, I have had the privilege of assisting numerous clients in making informed decisions and securing their financial future.