With the start of the new tax year, most of the personal finance world is talking about how to take advantage of the new £20,000 ISA allowance for 2026/2027.
But I’ve taken a different approach over the past few years: I haven’t been prioritizing my ISA. Instead, I’ve been maxing out my pension and I think the numbers make it hard to argue otherwise.
Salary Sacrifice vs. ISA Investing
My strategy is simple: I try to increase my salary sacrifice by as much as I can afford, and I regularly ask myself whether there’s headroom in my monthly budget to sacrifice more. The tax relief on every pound is significant. As a pure wealth-building exercise, the pension wins by a margin. Salary sacrifice reduces your pretax income, which means you’re not just deferring tax, you’re potentially lowering your income tax band entirely.
The ISA, by contrast, gives me zero relief on the way in. I’m funding it from post-tax income and leaving the tax relief unclaimed. The only scenarios where the ISA makes more sense are liquidity-driven: an emergency fund, a planned big purchase, or building an early retirement cushion to bridge the gap before pension access age.
I already have that liquidity pot. I haven’t withdrawn from my ISA, and the funds I hold have grown thanks to the strength of global equity markets. But new contributions are going into the pension.
The Junior ISA: My Daughter’s Portfolio
Where I have been actively contributing is to my daughter’s Junior ISA. I make every effort to max the JISA out each year, and Vanguard makes it easy to share the account details with family and friends so they can contribute for birthdays and other occasions.
This year, I considered putting new money into Vanguard’s recently launched LifeStrategy Global range. I’ve held LifeStrategy funds before, but I sold off the position because I didn’t like the heavy UK bias, which has now been lowered. The new Global LifeStrategy range addresses that problem entirely, holding only around 3% of equity assets and 4% of bonds in the UK.
However, given my daughter’s age, I wanted a 100% equity portfolio. When I evaluated the LifeStrategy Global 100% Equity Fund, with an ongoing charge of 0.20%, I checked whether I could find another passive index tracker offering comparable global equity exposure at a competitive cost. Vanguard’s own range gave me several options to compare: the FTSE All-World UCITS ETF at 0.19%, the FTSE Developed World UCITS ETF at 0.12%—though limited to developed markets—and the ESG Global All Cap UCITS ETF at 0.24%, which I already hold.
Over the long run, the LifeStrategy Global 100% Equity and the FTSE All-World would likely perform almost identically. A one basis point difference in fees doesn’t move the needle over a multidecade horizon. One is a fund of funds; the other is a clean index fund. Both are perfectly reasonable choices.
Ethics vs. Returns: Rethinking ESG Investing
I already hold the Vanguard ESG Global All Cap UCITS ETF V3AA in my daughter’s portfolio. It was originally an ethical choice. I wanted her not to have long-term exposure to vice products, weapons, and fossil fuels. The fund tracks the FTSE Global All Cap Choice Index, which excludes companies involved in nonrenewable energy, weapons, and those deriving revenue from oil, coal, and gas. With nearly 6,000 holdings and an ongoing charge of just 0.24%, it remains one of the most cost-effective ESG options for broad global equity exposure.
But this year, the decision felt harder. By excluding oil and defense, I was also excluding the portfolio from two of the strongest-performing sectors in the current geopolitical landscape. It came down to two questions I couldn’t easily answer:
- Is the ethical case strong enough that I’m comfortable accepting potential underperformance during periods like this?
- Or would I rather own the full market index and accept that I’m indirectly funding these industries?
These aren’t easy questions, and they don’t have easy answers. Ultimately, I decided I didn’t want to make an active call on oil and defense this year.
Choosing a Junior ISA Fund
I went with the Vanguard FTSE Global All Cap Index Fund, which tracks the FTSE Global All Cap Index. It holds over 7,500 stocks across developed and emerging markets of all sizes, with an ongoing charge of 0.23%. That’s more diversified than both the FTSE All-World ETF at roughly 4,300 holdings and the ESG variant at around 5,854.
Our Morningstar manager research team currently assigns a Medalist Rating of Gold to the fund, which reinforces why I’m comfortable with this choice. The fund has a High rating for both Process and Parent pillars.
It has outpaced its category average by nearly two percentage points annualized since inception, and its expense ratio is among the lowest in its peer group. The portfolio spans almost 50 countries and offers exceptional diversification that spreads stock-specific risk better than most competitors.
For a JISA with a time horizon measured in decades, that breadth of exposure, capturing small caps, emerging markets, and the full developed world, is exactly what I want. The low fee provides a durable advantage that compounds meaningfully over time.
The ESG fund stays in the portfolio for now. But the new money went into the full index. There’s a contradiction in excluding oil companies from your daughter’s portfolio while putting petrol in the car to drive her to school. At some point, you have to be honest about the world you actually live in. And owning these companies doesn’t mean you’re powerless. Vanguard’s stewardship team engages with the companies it holds on behalf of investors, pushing for better governance, climate commitments, and accountability. I’d rather be in the room as a shareholder than outside it as a bystander.
Monika Calay is director of research, Europe, for Morningstar
