Liz Alley of Brewin Dolphin, a wealth manager, said pensions were the best option for money that could be locked up for a long time.
“Pensions give their main tax break up front, with income tax relief added to your personal contribution when you pay into your fund. For example, a basic-rate taxpayer only needs to pay in £80 to make a £100 contribution, once the 20pc tax relief has been added. A higher-rate taxpayer who receives tax relief at 40pc would only need to pay in £60,” she said.
“This is a very generous tax boost and means you are essentially given free money to invest and grow in the stock market, and this can mean a larger fund compared to an Isa, all other things being equal.”
People who need to access their savings before their mid-60s, however, should save into an Isa.
Ms Alley said: “For preretirement goals, such as buying a house, carrying out a home renovation or paying for school fees, Isas are the best option.”
She added that pensions and Isas could be used successfully together to achieve the best of both worlds.
“If you’re not sure what your goals are, splitting your savings between Isas and pensions is a great option. Your money will have the opportunity to grow tax-efficiently, and you’ll be saving for your retirement in addition to your short-term goals.
If you’ve already maxed out your Isa allowance, it might make sense to focus on pension saving instead,” she said.
Jon Greer of Quilter, a financial planner, said pensions had the extra benefit of being outside someone’s estate, so they can be passed on without incurring inheritance tax, which is levied at 40pc on assets over £325,000.
“Money held in an Isa forms part of the estate on the death of the holder. If this is passed on to a spouse, it will be IHT-free, but if it is inherited by anyone else then it could trigger a payment to the taxman,” Mr Greer said.
Pensions sit outside your estate for tax purposes, but inherited pensions are still liable for income tax when the money is withdrawn, unless the saver dies before their 75th birthday.
Although Isa contributions do not attract tax relief, there is one account that earns a Government top-up: the Lifetime Isa.
Savers can put in up to £4,000 each year until they are 50, so long as they make their first contribution before 40. The Government adds a 25pc bonus, up to a maximum of £1,000 per year.
Given that the American stock market has historically returned about 8pc a year, getting an instant 25pc return is attractive to many savers.
