The standard advice is neat and easy to remember: spend your ISA first, and leave your pension untouched for as long as you can. It keeps the pension growing tax-free, and until recently it kept that money outside your estate too.

But the reality is that the order you draw your pots is one of the biggest levers you have over your lifetime tax bill. And the "right" order is not fixed. It shifts year by year, depending on your income, your age and the pots you hold.

Get the sequence right and you can move large sums out of your pension at 0% and 20% tax. Get it wrong and you can end up forced into the 40% band later, paying tax you never needed to pay.

Three pots, three completely different tax treatments

Most retirees hold money across three broad places, and each one is taxed differently when you draw it. That difference is the entire reason the withdrawal order matters.

• Your pension (a SIPP, or Self-Invested Personal Pension, plus any workplace pension). Normally 25% comes out tax-free; the rest is taxable as income when you withdraw it. It grows tax-free inside the wrapper.
• Your ISA (Individual Savings Account, including a Stocks and Shares ISA or a LISA, the Lifetime ISA). Funded from taxed income, but every withdrawal is completely tax-free and does not count as taxable income at all.
• General savings and investments (a GIA, or General Investment Account, plus cash savings). These can attract Capital Gains Tax, dividend tax, or tax on interest, each with its own allowance.

Here is how they compare in the 2026/27 tax year.

The Personal Savings Allowance is £1,000 of tax-free interest for basic-rate taxpayers, £500 for higher-rate, and nothing for additional-rate. Income tax bands cited here are for England, Wales and Northern Ireland; rates and bands differ in Scotland.

The two schools of thought

There are two honest camps, and both have a point.

Draw the ISA first, leave the pension till last. This keeps the pension invested and growing tax-free, minimises your taxable income now, and, historically, kept the pension outside your estate for Inheritance Tax (IHT). Simple, and for many years it was the default.

Draw the pension first, at least up to your tax-free bands. This deliberately takes taxable pension income early, while your income is low, to use up your Personal Allowance (£12,570) and basic-rate band each year. The logic is that if you never touch the pension, it keeps growing, and you are then forced to take large taxable withdrawals later, stacked on top of your State Pension, where they can be taxed at 40%.

So which is right? That depends almost entirely on one thing: the window.

The window that changes everything

Imagine you retire at 60, but your State Pension age is 67. For seven years you have little or no other taxable income. That is a window where you can draw pension income cheaply, filling the Personal Allowance at 0% and the basic-rate band at 20%.

Then the State Pension starts. The full new State Pension in 2026/27 is around £12,548 a year. That figure alone nearly fills your entire £12,570 Personal Allowance.

From that point on, almost every further pound of pension you draw is taxable, from the very first pound. Large withdrawals can quickly reach the 40% higher-rate band.

So the low-tax early-retirement window is a use-it-or-lose-it opportunity. Once it closes, it does not come back. And the ISA is the flexible tool that lets you top up your spending in those later years without adding a penny to your taxable income.

That interplay, pension income to fill the cheap bands early, ISA to keep taxable income down later, is the heart of efficient sequencing.

A worked illustration

Consider Diane, 60, recently retired in England. She holds £500,000 in a SIPP and £120,000 in a Stocks and Shares ISA. Her State Pension age is 67, and she wants roughly £35,000 a year to live on. These figures are illustrative, to show the mechanics.

Compare two patterns for the seven years before her State Pension starts.

In the first pattern, Diane lives on her ISA and pays no income tax for seven years. It feels efficient. But she leaves seven years of Personal Allowance completely unused, and her SIPP keeps growing. When her ISA runs low and the State Pension has switched on, she has to draw far more from the pension, and slices of it fall into the 40% band.

In the second pattern, she takes taxable pension income each year to fill the bands that are cheap while the window is open, and tops up the rest of her spending from the ISA. She preserves ISA money for later, so once the State Pension arrives her top-ups stay small and her income stays within the basic rate. On these assumptions, the second pattern keeps far more of her pension out of the 40% band across her retirement.

Neither pattern is universally correct. But they produce very different tax bills, from the same pots and the same spending.

Why April 2027 tilts the maths

There is a change coming that strengthens the case for drawing pensions earlier for many people. From 6 April 2027, most unused pension pots will count as part of your estate for Inheritance Tax, at the standard 40% rate. They currently sit outside it.

That weakens the old argument for leaving the pension untouched to pass on tax-free. For some households it shifts the balance toward drawing pension income earlier, using the cheap bands, rather than letting a large pot sit and later face IHT. It is one more variable in the sequence, and it is worth planning for factually rather than reacting to. We covered the April 2027 change in detail in a separate post.

There is no universal rule, and that is the point

"Always ISA first" and "always pension first" are both wrong. The efficient order depends on your pot sizes, your spending, your State Pension timing, your position on the April 2027 IHT change, and the tax band you land in each year. Investments can fall as well as rise, which changes the numbers again.

This is not a one-time decision. It is a genuine year-by-year optimisation, and doing it by hand across a 30-year retirement is exactly where a spreadsheet starts to creak.

Deciding which pot to draw from, in what order, and how much each year to stay in the lowest bands across your whole retirement, is precisely the problem Optiml UK is being built to solve. Its Withdrawal Optimiser is designed to sequence your SIPP, ISA, GIA and State Pension so more of your money stays in the 0% and 20% bands, and less slips into 40%. Optiml is coming to the UK, and the waitlist is where you can be first to model your own numbers.

The pot you draw from matters. The order you draw it in matters more.

It is not about spending your ISA or your pension. It is about spending them in the right order.