Lifetime ISA for retirement
Discussion
I'm considering a LISA for me and the wife. We are 31 and 32 years old. At face value, 25% return yearly seems great value for something that has little risk. However it's actually a 25% return for 28 years investment.
£4000 per year investment each would be a comfortable amount for us. We wouldn't want high risk (low-medium would be better).
Would we expect better returns in a SIPP? Would investing in low/medium risk over 28 years likely give a better return?
£4000 per year investment each would be a comfortable amount for us. We wouldn't want high risk (low-medium would be better).
Would we expect better returns in a SIPP? Would investing in low/medium risk over 28 years likely give a better return?
JapanRed said:
I'm considering a LISA for me and the wife. We are 31 and 32 years old. At face value, 25% return yearly seems great value for something that has little risk. However it's actually a 25% return for 28 years investment.
£4000 per year investment each would be a comfortable amount for us. We wouldn't want high risk (low-medium would be better).
Would we expect better returns in a SIPP? Would investing in low/medium risk over 28 years likely give a better return?
Just like an ISA or a LISA, a SIPP is just an investment wrapper.£4000 per year investment each would be a comfortable amount for us. We wouldn't want high risk (low-medium would be better).
Would we expect better returns in a SIPP? Would investing in low/medium risk over 28 years likely give a better return?
The returns you achieve will be largely dictated by the underlying investment strategy (and any tax benefits).
It is confusing, because it reads as "interest on contributions", so therefore can only earn interest up to the point in which they stop you paying in (50). The spiel also says "maximum £32,000", which is 25% of all contributions for the maximum 32 years (starting at 18).
Makes for an interesting option though if you want to throw £4k in each year to a S&S LISA, though the government will only pay interest on the contribution you put in (and interest made), not any profits from investing.
What I cannot find however is whether in the first year you can dump the £4k in on the 5th April and still get the maximum £1k interest? Beyond that, it is monthly.
Makes for an interesting option though if you want to throw £4k in each year to a S&S LISA, though the government will only pay interest on the contribution you put in (and interest made), not any profits from investing.
What I cannot find however is whether in the first year you can dump the £4k in on the 5th April and still get the maximum £1k interest? Beyond that, it is monthly.
mdianuk said:
It is confusing, because it reads as "interest on contributions", so therefore can only earn interest up to the point in which they stop you paying in (50). The spiel also says "maximum £32,000", which is 25% of all contributions for the maximum 32 years (starting at 18).
Makes for an interesting option though if you want to throw £4k in each year to a S&S LISA, though the government will only pay interest on the contribution you put in (and interest made), not any profits from investing.
What I cannot find however is whether in the first year you can dump the £4k in on the 5th April and still get the maximum £1k interest? Beyond that, it is monthly.
Where are you getting your information from, particularly "interest on contributions"?Makes for an interesting option though if you want to throw £4k in each year to a S&S LISA, though the government will only pay interest on the contribution you put in (and interest made), not any profits from investing.
What I cannot find however is whether in the first year you can dump the £4k in on the 5th April and still get the maximum £1k interest? Beyond that, it is monthly.
The government pay a bonus of 25% of the money you put into a LISA - you seem to be confusing this with "interest".
As has been previously mentioned in this thread, a LISA is just a wrapper, investment returns or interest depend on what you choose to invest your contributions into.
Below are some links with a bit more information:
https://www.gov.uk/lifetime-isa
https://www.gov.uk/government/news/lifetime-isas-a...
https://www.youinvest.co.uk/isa/lifetime-isa
http://www.hl.co.uk/investment-services/lifetime-i...
JapanRed said:
I'm considering a LISA for me and the wife. We are 31 and 32 years old. At face value, 25% return yearly seems great value for something that has little risk. However it's actually a 25% return for 28 years investment.
By "25% return yearly" are you referring to the 25% bonus to contributions to you make that the government gives? Future investment or interest that is earns depends on what you invest your contributions in. Risk is also dependant on what you choose to invest in.JapanRed said:
Would we expect better returns in a SIPP? Would investing in low/medium risk over 28 years likely give a better return?
Most people get income tax relief on pension contributions paid into a SIPP - depending on your marginal rate of tax, this may or may not be better than a LISA. The investment returns in a SIPP or LISA depend on what you choose to invest in - choosing to invest in X would generate the same return in either option.CarlosFandango11 said:
Where are you getting your information from, particularly "interest on contributions"?
Embarrassingly I Googled it and came from moneysavingexpert:"You only get the bonus on contributions, not interest or stocks and shares growth/loss."
http://www.moneysavingexpert.com/savings/lifetime-...
mdianuk said:
CarlosFandango11 said:
Where are you getting your information from, particularly "interest on contributions"?
Embarrassingly I Googled it and came from moneysavingexpert:"You only get the bonus on contributions, not interest or stocks and shares growth/loss."
http://www.moneysavingexpert.com/savings/lifetime-...
You get to keep any interest or investment profits/losses that you make for however long you hold the LISA.
You can pay in the £4K maximum on the 5th of April and still get the 25% government bonus. Any interest or investment profit/loses will depend on what you choose to invest in.
CarlosFandango11 said:
You're confusing the government bonus on contributions with interest. Where you have written "interest on contributions ", you have been referring to the government 25% bonus on contributions.
You get to keep any interest or investment profits/losses that you make for however long you hold the LISA.
You can pay in the £4K maximum on the 5th of April and still get the 25% government bonus. Any interest or investment profit/loses will depend on what you choose to invest in.
Yes, that is what I was saying though, that the gov will pay interest on your contributions up to 50 years old, but not on any profits made from S&S etc. So essentially the gov help increase the pot up to 50 years old, then beyond that (and before of course) you have to hope to increase it through selective S&S funds etc.You get to keep any interest or investment profits/losses that you make for however long you hold the LISA.
You can pay in the £4K maximum on the 5th of April and still get the 25% government bonus. Any interest or investment profit/loses will depend on what you choose to invest in.
Seems a reasonable deal to me; if they backtrack in later years on the interest, they will also need to on the conditions of the withdraw too, at which point it could be transferred into any other ISA.
mdianuk said:
Yes, that is what I was saying though, that the gov will pay interest on your contributions up to 50 years old, but not on any profits made from S&S etc. So essentially the gov help increase the pot up to 50 years old, then beyond that (and before of course) you have to hope to increase it through selective S&S funds etc.
Seems a reasonable deal to me; if they backtrack in later years on the interest, they will also need to on the conditions of the withdraw too, at which point it could be transferred into any other ISA.
The government pay a bonus on contributions, not interest. Essentially the government helps to increase your contributions, similar to a pension.Seems a reasonable deal to me; if they backtrack in later years on the interest, they will also need to on the conditions of the withdraw too, at which point it could be transferred into any other ISA.
If they backtrack on future bonuses, you will still have the previous bonuses paid on previous contributions, so there doesn't seem to be a need to change the conditions of withdrawal.
CarlosFandango11 said:
If they backtrack on future bonuses, you will still have the previous bonuses paid on previous contributions, so there doesn't seem to be a need to change the conditions of withdrawal.
Again, confusion here as it states the withdraw penalty is 25% on the entire contributions, not just current year. Hope that is wrong!mdianuk said:
CarlosFandango11 said:
If they backtrack on future bonuses, you will still have the previous bonuses paid on previous contributions, so there doesn't seem to be a need to change the conditions of withdrawal.
Again, confusion here as it states the withdraw penalty is 25% on the entire contributions, not just current year. Hope that is wrong!The withdrawal penalty is 25% of the amount withdrawn.
LISAs get a 25% uplift from HMRC (after a year) on net (after tax) contributions. You need to be older than 18 but below 40 to invest and cannot make additional contributions from 50. You have to wait until you are 60 to start drawing anything out or suffer a penalty of 25% of any amount withdrawn (note: 25% of what is taken out is more than the 25% added - unless you have made a loss, for example, £4,000 invested would be worth £5,000 after the 25% uplift but a 25% penalty on a £5,000 withdrawal is £1,250 meaning you get back £3,750 and lose £250 of your cash). Investment limit is £4,000 a year. Withdrawals are tax free (with the exception of the pre-60 rule above). LISAs have no lifetime limit (currently).
SIPPs also get 25% uplift from HMRC on net contributions - but pretty much immediately (so it is working for longer for you). Higher rate taxpayers can also get further 25% (of the net contribution) back from HMRC on their tax return. You can be any age to invest and make additional contributions. You have to wait until you are 10 years before the state pension age (so currently 55) to make withdrawals (though the state pension age - and therefore this - is increasing). Investment limit with the HMRC contribution(s) is restricted to your relevant earnings (although children and non-tax payers can invest £3,600 a year gross with no relevant earnings) and is currently capped at £40,000 a year. 25% can be withdrawn tax free and the balance is taxed at your marginal rate in any given tax year. SIPPs also allow investment into physical assets (commercial property/land/gold/etc.) that LISAs/ISAs do not allow. SIPPs have a lifetime limit of £1m (currently) and this includes any investment growth (not just contributions) so is pretty bloody shameless if you ask me.
ISAs get no uplift from HMRC. You can be any age to invest and make additional contributions. You can invest £20,000 a year (minus anything you - not HMRC - have placed into your LISA). You can make tax free withdrawals whenever you like. ISAs have no lifetime limit (currently).
All income and growth in any of these is free of any personal tax. What must always be remembered though is;
BUT - NONE OF THE ABOVE ARE ACTUALLY INVESTMENTS...! They are tax allowances/wrappers.
What you invest in inside of your chosen allowance/wrapper is the only thing that effects the investment returns you are going to get (well, that and charges). The LISA/ISA/SIPP wrappers/allowances have no impact on the performance/returns you will/will not get from the investments held within them (other that facilitate no income or capital tax gains).
SIPPs also get 25% uplift from HMRC on net contributions - but pretty much immediately (so it is working for longer for you). Higher rate taxpayers can also get further 25% (of the net contribution) back from HMRC on their tax return. You can be any age to invest and make additional contributions. You have to wait until you are 10 years before the state pension age (so currently 55) to make withdrawals (though the state pension age - and therefore this - is increasing). Investment limit with the HMRC contribution(s) is restricted to your relevant earnings (although children and non-tax payers can invest £3,600 a year gross with no relevant earnings) and is currently capped at £40,000 a year. 25% can be withdrawn tax free and the balance is taxed at your marginal rate in any given tax year. SIPPs also allow investment into physical assets (commercial property/land/gold/etc.) that LISAs/ISAs do not allow. SIPPs have a lifetime limit of £1m (currently) and this includes any investment growth (not just contributions) so is pretty bloody shameless if you ask me.
ISAs get no uplift from HMRC. You can be any age to invest and make additional contributions. You can invest £20,000 a year (minus anything you - not HMRC - have placed into your LISA). You can make tax free withdrawals whenever you like. ISAs have no lifetime limit (currently).
All income and growth in any of these is free of any personal tax. What must always be remembered though is;
BUT - NONE OF THE ABOVE ARE ACTUALLY INVESTMENTS...! They are tax allowances/wrappers.
What you invest in inside of your chosen allowance/wrapper is the only thing that effects the investment returns you are going to get (well, that and charges). The LISA/ISA/SIPP wrappers/allowances have no impact on the performance/returns you will/will not get from the investments held within them (other that facilitate no income or capital tax gains).
Thanks everyone.
JulianPH; very informative thank you. So which is best? SIPP or LISA (or other), considering the following?
I'm 32, wife is 31. I earn a £55k salary. She earns a £42k salary. I have a Ltd company that made £100k profit last year (currently has £100k sitting in it). Dividends taken between me and the wife vary yearly but we try to limit taking money out unless for a big purchase (such as wedding and new car this year). Unlikely to take much in dividends in next 1-2 years.
My financial advisor says to go SIPP....
JulianPH; very informative thank you. So which is best? SIPP or LISA (or other), considering the following?
I'm 32, wife is 31. I earn a £55k salary. She earns a £42k salary. I have a Ltd company that made £100k profit last year (currently has £100k sitting in it). Dividends taken between me and the wife vary yearly but we try to limit taking money out unless for a big purchase (such as wedding and new car this year). Unlikely to take much in dividends in next 1-2 years.
My financial advisor says to go SIPP....
JapanRed said:
Thanks everyone.
JulianPH; very informative thank you. So which is best? SIPP or LISA (or other), considering the following?
I'm 32, wife is 31. I earn a £55k salary. She earns a £42k salary. I have a Ltd company that made £100k profit last year (currently has £100k sitting in it). Dividends taken between me and the wife vary yearly but we try to limit taking money out unless for a big purchase (such as wedding and new car this year). Unlikely to take much in dividends in next 1-2 years.
My financial advisor says to go SIPP....
Your adviser is right when it comes to any earnings in the higher rate bracket. A SIPP is always going to be the best solution there. You do have to keep a keen eye on charges though. SIPPs are not expensive now days but some providers still charge a fortune (as do some advisers).JulianPH; very informative thank you. So which is best? SIPP or LISA (or other), considering the following?
I'm 32, wife is 31. I earn a £55k salary. She earns a £42k salary. I have a Ltd company that made £100k profit last year (currently has £100k sitting in it). Dividends taken between me and the wife vary yearly but we try to limit taking money out unless for a big purchase (such as wedding and new car this year). Unlikely to take much in dividends in next 1-2 years.
My financial advisor says to go SIPP....
Quick answer:
Anything you are saving/investing for retirement that you are being taxed at the higher rate should be in a low cost SIPP (probably investing in passive funds/ETFs with asset allocation driving investment structure). This way you get the best tax breaks and the lowest charges for a good value portfolio.
Anything in the basic rate should go into a Lifetime ISA (again, I am assuming this is for retirement and you won't want/need to access this money until you are both 60). It gives you the same tax relief (at the basic rate) as a pension/SIPP but is 100% tax free in retirement.
Anything else to invest, use an ISA but look at paying down your mortgage (this is usually a far better return on capital) and make sure you are insured if/when you have children.
Another thing, the £100,000 profit in your company is going to be hit by corporation tax but you could save most of this by using this money to make your full SIPP contributions this year (providing you don't need it for cash flow) for you and your wife. That is something worth looking into.
Cheers
Thanks again JulianPH, once again very helpful. Any recommendations for good/low-cost SIPPs? I've heard a lot on here about Hargreaves Lansdown...
I assume most places/people charge a percentage on what's invested? What would be a good rate to pay on a SIPP?
There are loads of different financial advisors and companies out there. How do I choose a good one?
I assume most places/people charge a percentage on what's invested? What would be a good rate to pay on a SIPP?
There are loads of different financial advisors and companies out there. How do I choose a good one?
JapanRed said:
Thanks again JulianPH, once again very helpful. Any recommendations for good/low-cost SIPPs? I've heard a lot on here about Hargreaves Lansdown...
I assume most places/people charge a percentage on what's invested? What would be a good rate to pay on a SIPP?
There are loads of different financial advisors and companies out there. How do I choose a good one?
Fixed fees - most SIPP providers offer these. £150 a year is pretty good. You can (and will) pay more if you want though.I assume most places/people charge a percentage on what's invested? What would be a good rate to pay on a SIPP?
There are loads of different financial advisors and companies out there. How do I choose a good one?
PM me if you like. I don't want to over-stray the rules of the forum. I am NOT a financial adviser though.
Cheers
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