LISA or make additional pension contributions?

Phaelok · 17 April 2017 at 7:35PM

Hi everyone,

I am interested in opening a LISA with a view to saving for retirement and keeping that money locked away. Having read a number of reports it seems that unless one is self-employed, it is better to avoid this product and make additional contributions via your employer. I have a teachers' pension and my employer pays in approximately one and a half times what I pay in monthly.

In short, would it be better to go down the route of making additional payments (AVC)via my employer or go with the LISA? If I go with the former, I may get back less than what I put in. If I go with the LISA, the money appears to be guaranteed with the £1k yearly bonus....unless subsequent governments change!

Thanks

jimjames · 17 April 2017 at 7:40PM

Phaelok wrote: »

In short, would it be better to go down the route of making additional payments (AVC)via my employer or go with the LISA? If I go with the former, I may get back less than what I put in. If I go with the LISA, the money appears to be guaranteed with the £1k yearly bonus....unless subsequent governments change!

Thanks

The money in an investment LISA is not guaranteed even with the bonus. If markets drop then it is still possible and indeed likely that you could have less in the account than you paid in. However over the long term it should still do far better than cash.

Westie983 · 17 April 2017 at 9:11PM

Only true till cash LISA are out, with the few that are looking to offer one...

That said things can change.

shinypenny · 18 April 2017 at 2:06PM

Hi there, I've been looking at these options too. It all depends on your retirement plans. Do you want more money on retirement (assuming at age 68) or would you like to retire early?

As stated above, there is not currently a cash LISA. If you are nearing 40, you could take out a stocks and shares (S&S) LISA and transfer it once cash LISAs become available. You can save into the fund until age 50, with the money being able to be withdrawn from age 60 (currently!).

Your work pension may offer additional pension contributions. These are taken from your salary before TAX. These would increase the value of your employer pension on your retirement (from age 68). You could consider this if you don't feel your work pension is valuable enough for your retirement plans. Spouse and dependant benefits are not increased - just your own - but APCs contributions are still index linked.

Additional voluntary contributions are a S&S savings pot with the contribution also taken before TAX (so a £300 monthly contribution would only cost you £240). The fund can be taken from age 55 (check your scheme) as a lump sum or annual withdrawal. If you want to retire early, and therefore need 'cash' to tide you over until you were eligible for your work pension / state pension to be paid you can use this fund. You can choose the level of investment risk you are happy with, obviously reducing this as you near retirement age.

It's unlikely your employer will match any contribution to APCs or AVCs. The £1,000 LISA bonus is only if your save the full £4,000 / yr.

For what it's worth, I'm topping up my employer pension via APCs to try and cover some of the lost value in moving to part time employment following the birth of my baby. In the future, I'm planning to save via AVCs as I'd ideally like to retire at age 63 (five years early). I'm not yet 40 but have discounted the LISA as although your contributions are guaranteed, there's a full 10 years (age 50 to 60) when it's only earning the rate of interest the supplier decides to offer at the time, plus I think there's a greater risk of the 'goalposts' being changed over time, compared with AVCs.

Hope that helps.

Phaelok · 18 April 2017 at 5:26PM

Thank you all. Very helpful indeed

LISA or make additional pension contributions?

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