LISA for retirement / lifetime allowance

jkwer521 · 24 June 2017 at 12:18AM

I am considering opening a LISA to save for retirement. I already own a property so it could only be for retirement.

The reason why I do not want to contribute more to my pension is that if I continue to contribute at my current rate (maxed out employer matching contributions), then I am likely to be at or around the lifetime allowance at some point. I know I could increase my contributions and just stop contributing when I am at a level where I might breach the limit, but then I would be missing out on employer matching contributions in future. To be clear, I am not currently anywhere near the lifetime allowance, but I might reach it based on my long term projections.

So then the next option would be a simple S&S ISA, but this obviously doesn’t have the additional 25% bonus. So my thinking is that I should contribute to a LISA first, then S&S ISA. I understand that I can contribute to both in the same year.

Any thoughts? Does anyone else use the LISA just for retirement savings? I think the main downside would be that I can’t access it until I’m 60.

PeacefulWaters · 24 June 2017 at 3:00AM

Your thinking makes sense. Make sure you factor 40% tax relief into your thinking if you earn enough.

You can access LISA with a 5% penalty and loss of bonus.

jkwer521 · 24 June 2017 at 9:45AM

Thanks, yes I had considered the 40% tax relief, but I think the potential LTA charge of 55% more than offsets this relief on additional contributions.

Also, good point about the fact that you can take it out of the LISA (with penalty), which means I could use some of it in an emergency.

Not_Me_Officer · 24 June 2017 at 1:44PM

Except if you save into a LISA and a standard S&S ISA as you mention then you would surely withdraw from your S&S first in case of emergency? Or even cash. The point being a LISA would surely be literally last resort?

jkwer521 · 24 June 2017 at 11:43PM

Thanks, yes LISA would be the last resort in an emergency.

The only reason I'm hesitant is the very long term nature of it (I'm 35). For my pension contributions, the large incentive is employer matching contributions and tax relief at 40%, which makes up for having to wait until 55 to access it - but the LISA is only 20% and you have to wait until 60. On the other hand, I don't want to miss out on free money! I understand that you have to open a LISA before 40 and you can only contribute up until age 50.

The other option would be to pay some more off the mortgage.

marco_79 · 25 June 2017 at 10:32PM

Hi OP,

I'm in a similar position to you at 37.

About to transfer a near £1m pension pot from a DB scheme into a SIPP "following comprehensive advice from a chartered IFA". With 20 years of growth this will hopefully exceed the LTA by some margin.

Now have about £1200 extra income per month to put somewhere other than a pension.

Looking at the following options -

1. Max a 5% savings account
2. Contribute to my wife pension, non tax payer. £2880
3. LISA
4. S&S ISA
5. Blitz mortgage £105k (12 years left)
6. Kids ISAs

I favouring the mortgage too at the moment but covering this with my IFA shortly.

jkwer521 · 26 June 2017 at 10:13PM

Hi marco_79 - is there anything you would have done differently to avoid exceeding the LTA?

Also, where are you getting the 5% savings account? Is this a regular saver?

RickyB2000 · 27 June 2017 at 7:05AM

If I remember correctly, Marco won the lottery in the sense that his pension scheme offered him a huge amount in exchange for a modest DB pension (considering age). I don't think he could have done it differently (except not transfer the DB - but future tax relief and employer contributions would have to have been worth more than he got extra in the transfer).

marco_79 · 27 June 2017 at 12:10PM

Ricky is right there is nothing I could do to avoid hitting the LTA other than not taking the transfer value which was over x 43. One thing I do have in my favour is the LTA will rise by inflation from 2018 until the rules change again which should increase the LTA by a fair bit in 20 years time.

The 5% is a regular saver with the Nationwide subject to having a current account with them. Its capped at £500 a month for 12 months but better than nothing.

LISA for retirement / lifetime allowance

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