LISA for pension
Discussion
AllyM said:
I do, but isn t there renewed chatter about the LISA disappearing as there is a belief that people don t understand it and are being caught out by the rules vs a ISA? Hmm.
I ll keep sticking £4k/yr in as long as it remains an option.
I don't think the chatter is around getting rid of the LISA, more about it needs reviewed as lots of people are being caught out by the early withdrawl charge and getting out less than they put in. There's also noise about the limit on first home purchase price being set at £450k and this is too low.I ll keep sticking £4k/yr in as long as it remains an option.
On the former, its not exactly an unknown that you have an early withdrawl penalty, but I think it would be fairer if the early withdrawl fee was 20% of the total rather than 25% of the total for more equivalence to the pay in bonus.
On the latter, outside the south east, this isnt even vaguely a problem for normal people.
I have a LISA but its very much an after thought pot, primary savings remain through a normal ISA and pension through salary sacrifice at work. The LISA is a pension bonus pot mostly to stop me frittering away random bits of cash that pop up every now and then.
Ive got one with a token amount but despite the advice seeming being that its a good thing I can't see the benefit vs pension contributions.
Back of a napkin maths assuming ive got an extra £100 to save a month for easy maths
with that £100 I could put it into my pension via salary sacrifice, whole £ goes in tax free but will be taxed on exit. 25% tax free the rest likely taxed at 20%
Assuming 5% growth thats 258 in 19 years
64.5 tax free
193 @ 20% - £154
£218 in my pocket age 60
if I save it into a LISA once ive taken of income and NI Ive got £60 in my account
60 + 25% > £75 in Lisa
Assuming 5% growth thats £193 age 60 or about 12% less than id get from my pension
( or have I missed something? ie the expectation of increased fiscal drag meaning even a modest pension would be taxed at 40% or is my maths missing something)
Back of a napkin maths assuming ive got an extra £100 to save a month for easy maths
with that £100 I could put it into my pension via salary sacrifice, whole £ goes in tax free but will be taxed on exit. 25% tax free the rest likely taxed at 20%
Assuming 5% growth thats 258 in 19 years
64.5 tax free
193 @ 20% - £154
£218 in my pocket age 60
if I save it into a LISA once ive taken of income and NI Ive got £60 in my account
60 + 25% > £75 in Lisa
Assuming 5% growth thats £193 age 60 or about 12% less than id get from my pension
( or have I missed something? ie the expectation of increased fiscal drag meaning even a modest pension would be taxed at 40% or is my maths missing something)
itlab said:
Ive got one with a token amount but despite the advice seeming being that its a good thing I can't see the benefit vs pension contributions.
Back of a napkin maths assuming ive got an extra £100 to save a month for easy maths
with that £100 I could put it into my pension via salary sacrifice, whole £ goes in tax free but will be taxed on exit. 25% tax free the rest likely taxed at 20%
Assuming 5% growth thats 258 in 19 years
64.5 tax free
193 @ 20% - £154
£218 in my pocket age 60
if I save it into a LISA once ive taken of income and NI Ive got £60 in my account
60 + 25% > £75 in Lisa
Assuming 5% growth thats £193 age 60 or about 12% less than id get from my pension
( or have I missed something? ie the expectation of increased fiscal drag meaning even a modest pension would be taxed at 40% or is my maths missing something)
That's really interesting. I'm glad I come across this I was planning on opening an LISA for me (higher rate) and my wife (basic rate) for pensions. Back of a napkin maths assuming ive got an extra £100 to save a month for easy maths
with that £100 I could put it into my pension via salary sacrifice, whole £ goes in tax free but will be taxed on exit. 25% tax free the rest likely taxed at 20%
Assuming 5% growth thats 258 in 19 years
64.5 tax free
193 @ 20% - £154
£218 in my pocket age 60
if I save it into a LISA once ive taken of income and NI Ive got £60 in my account
60 + 25% > £75 in Lisa
Assuming 5% growth thats £193 age 60 or about 12% less than id get from my pension
( or have I missed something? ie the expectation of increased fiscal drag meaning even a modest pension would be taxed at 40% or is my maths missing something)
For a Basic Rate Taxpayer it seems like a no brainer to use a LISA as you'll end up with the same amount but it's all tax free.
I think what you've said about a higher rate tax payer makes sense. You'd just need to make sure the additional tax relief goes into your SIPP.
However I would say it is dependant on tax rules, and like you say whether you'd end up paying 40% or more and if the 25% tax free lump sum remains the same or is abolished. Whereas I doubt a LISA would ever become taxable but you never know.
I think what I've concluded whilst writing this is I'll get a LISA each, and once these are maxed out each year pay into an ISA for her and SIPP for me. We both have workplace pensions as well.
Interesting to add the government bonus is only payable on the LISA up to 50 years old at which point I'd stop paying in and pay into a ISA or SIPP instead.
I max one out for my son,
I considered a pension and as a student I could have put almost equivalent in but I thought that with a Lisa he would have the option of using it against a house rather than waiting 40 years to access it.
I liked it being tied up so he couldn’t just spunk it all. Although to be fair he hasn’t touched the ISA that became his at 18.
I considered a pension and as a student I could have put almost equivalent in but I thought that with a Lisa he would have the option of using it against a house rather than waiting 40 years to access it.
I liked it being tied up so he couldn’t just spunk it all. Although to be fair he hasn’t touched the ISA that became his at 18.
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