Pension vs Lifetime ISA: Which Is Better for Long-Term Saving in 2025?
Wondering where to put your savings for the best long-term growth? Is it a pension or a Lifetime ISA? We have compared both in 2025 with respect to salary, tax advantages, and retirement goals.
A lot of people ask themselves: "Should I invest in a pension or a Lifetime ISA?" The answer is determined by factors like salary, tax, and financial considerations. This guide reveals insights into both options for making the most out of your money in 2025, tool-supported by a salary calculator.
What Is a Pension?
A pension is an arrangement made for long-term saving, having tax reliefs, for giving you an income after retirement. As per UK law, this is available for most individuals via:
- A workplace pension, where your employer also contributes.
- A self-arranged personal pension.
Key benefits include:
- You get tax relief on contributions.
- Contributions from employers usually top up your savings.
- Funds grow tax-free, and you can access them after age 55 (57 from 2028).
What Is a Lifetime ISA (LISA)?
The Lifetime ISA is a savings account dedicated to helping one get on the property ladder for the first time or for retirement planning. You can put in £4,000 every year and the government puts in a 25% bonus — that's an additional £1,000 per year.
Key features:
- It can be used for your first house or retirement after age 60.
- No tax relief is given like pensions, but the bonus is generous.
- If you take money out before age 60 (unless you're using it to buy a house), you will be hit with a penalty.
Pension Vs LISA: A Salary-Based Comparison
Let us have an example that will show the influence of salary on decision-making. Earning £35,000 a year:
- Pension: 5% contribution or £1,750 plus 3% employer match amounting to £2,800 in total.
- LISA: You contribute £1,750 and earn a bonus of £437.50, therefore the total is £2,187.50.
From that point onwards, of course, there is also tax relief on pensions, so the actual cost to you will depend on your income tax bracket. If you are in the basic tax bracket (20%), therefore it cost you £1,400 to contribute £1,750 into your pension.
Access and Flexibility
| Feature | Pension | Lifetime ISA |
|---|---|---|
| Age for access | 55 (57 from 2028) | 60 (unless buying home) |
| Government bonus | Tax relief based on income | 25% bonus on contributions |
| Employer contribution | Yes | No |
| Withdrawal flexibility | Limited | Penalty for early access |
Using a Salary Calculator to Decide
Do you want to know which option will give you value for money? So why not try using a UK salary calculator to:
- Estimate your take-home pay after pension contributions.
- Calculate how much tax you are saved by salary sacrifice.
- Compare actual cost vs. saving between a pension and LISA.
Such tools can be especially valuable in assessing the amount you can afford to pay or if you are weighing this against an employer contribution.
Best For You in 2025?
A workplace pension with employer contributions will usually provide the best return-value-for-money with respect to tax relief. Enrolled self-employed, or looking for more flexible savings, will find a Lifetime ISA to be the alternative. Some would even use both—maxed out in pensions for the tax efficiencies and then topped up in LISA for the bonus and flexibility.
Final Thoughts
It also comes down to understanding your typical salary, tax bracket, and retirement goals between more on savings and which to choose in 2025—as a pension or as a Lifetime ISA. A decent-enough salary calculator will get you close in finances so you can have a sound long-term plan.
Want to dig deeper into your personal numbers? Try out our full UK salary calculator tool to see how pension and LISA contributions affect your net pay in real-time.