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    • adonis10
    • By adonis10 20th Apr 17, 11:47 AM
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    adonis10
    LISA - worth it?
    • #1
    • 20th Apr 17, 11:47 AM
    LISA - worth it? 20th Apr 17 at 11:47 AM
    So far I have read an awful lot of negativity on the LISA so am now in two minds whether to opt for it.


    Current situation is as follows:
    - £5k S&S isa
    - £56k cash savings
    - £146k mortgage (joint with partner)
    - employer pension which I contribute in the max (salary sacrifice), as do they @ 8% and 16% respectively.
    - no private pension
    - £700 to invest/save per month


    I have maxed out all the higher rate savings and current accounts available (most rates are decreasing so they're becoming less attractive).


    £333/month doesn't seem unreasonable to commit to a LISA as it is just under half of what I can save each month, perhaps finding out if I can up my pension contributions is worthwhile (e'er % will not change, though).


    Any thoughts?
Page 1
    • kidmugsy
    • By kidmugsy 20th Apr 17, 3:01 PM
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    kidmugsy
    • #2
    • 20th Apr 17, 3:01 PM
    • #2
    • 20th Apr 17, 3:01 PM
    24% into a pension is pretty good: it's about equivalent to the rate that some DB pensions used to involve. How about your position: for instance after your current 8% sal sac, are you a higher rate taxpayer? Do you have children? How old are you?

    Would you be happy to wait until later in the tax year when a wider range of LISAs might be available? Are you happy at the prospect of tying up the money until you are 60? What's wrong with putting more money into your S&S ISA? Could you bear to park your savings income into Premium Bonds (for example) until the US stock market has a bit of a crash?
    • adonis10
    • By adonis10 20th Apr 17, 3:29 PM
    • 1,263 Posts
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    adonis10
    • #3
    • 20th Apr 17, 3:29 PM
    • #3
    • 20th Apr 17, 3:29 PM
    24% into a pension is pretty good: it's about equivalent to the rate that some DB pensions used to involve. How about your position: for instance after your current 8% sal sac, are you a higher rate taxpayer? Do you have children? How old are you?
    Originally posted by kidmugsy

    Basic rate taxpayer, no children and I am 33.

    Would you be happy to wait until later in the tax year when a wider range of LISAs might be available? Are you happy at the prospect of tying up the money until you are 60? What's wrong with putting more money into your S&S ISA? Could you bear to park your savings income into Premium Bonds (for example) until the US stock market has a bit of a crash?
    Originally posted by kidmugsy


    I would wait until later in the year, certainly. I assume a lump sum of £4k can be put in at any time? I am content with tying up a proportion of my total cash until I am 60 and, at the current stage, £4k a year of that is fine however this may change.


    This is a guaranteed return of 25% on investment (until future governments change the rules) whereas S&S isn't.


    I have £5k in PB's and won't be putting any more into them - haven't won a penny in 6 years so do not rate them but happy to keep that in on the ridiculous off chance that I win a decent prize ("someone has to" is the logic behind it).
    Last edited by adonis10; 20-04-2017 at 3:35 PM.
    • eskbanker
    • By eskbanker 20th Apr 17, 4:20 PM
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    eskbanker
    • #4
    • 20th Apr 17, 4:20 PM
    • #4
    • 20th Apr 17, 4:20 PM
    This is a guaranteed return of 25% on investment (until future governments change the rules) whereas S&S isn't.
    Originally posted by adonis10
    Although a guaranteed rate of 25% sounds superficially attractive, it's a pathetic (sub-1% annually) return over a 27 year period from age 33 to 60 (or even an average 13.5 years of linear contributions) - S&S investments will fluctuate in both directions over that time but would be expected to outperform that by some margin.

    I have £5k in PB's and won't be putting any more into them - haven't won a penny in 6 years
    Originally posted by adonis10
    ....in which case you are incredibly unlucky! According to the calculator there's only a 1 in 22,030 chance of a £5K holding winning nothing over 5 years, and so there'd be even longer odds for six years.
    • bowlhead99
    • By bowlhead99 20th Apr 17, 8:01 PM
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    bowlhead99
    • #5
    • 20th Apr 17, 8:01 PM
    • #5
    • 20th Apr 17, 8:01 PM
    Although a guaranteed rate of 25% sounds superficially attractive, it's a pathetic (sub-1% annually) return over a 27 year period from age 33 to 60 (or even an average 13.5 years of linear contributions) - S&S investments will fluctuate in both directions over that time but would be expected to outperform that by some margin.
    Originally posted by eskbanker
    For a basic rate taxpayer who is already making use of pension opportunities, being able to do another £4k a year investment which is increased by 25% for free with no-strings withdrawal at age 60 is awesome.

    Your 17x£4000 (£68000) being invested between age 33 and 50 will be invested over a 17 year period and by age 50 it will have been at work for, on average, about nine years (some of it zero years some of it 17-18). Then it will continue to grow for another decade from age 50-60 before you can touch it. 9+10 = 19. So the £68k will have had, on average 19 years growth.

    If the LISA is used to invest into a broad portfolio of internationally diversified equity and bond investment fund investments over a 19 year period you could probably expect real terms growth of somewhere between 75-130% (assuming the investments return, on average, somewhere between 3% and 4.5% in excess of inflation each year, which is not particularly high in historic terms).

    So, having turned your drip-fed £68000 into £119k or £157k in real terms, it is very nice indeed to have the 25% boost take the £119k-157k theoretical real-terms proceeds up to the £149k to £196k range. You will basically double to triple your money in real terms, even assuming only moderate investment returns as the average long term result of markets going up and down over time.

    Whereas, if you decide not to use S&S investments within the LISA between now and age 60, and just hold it in cash, the amount of interest you receive will probably be broadly equivalent to what you lose to inflation. So your £68k is still 'worth' £68k or so in real terms. Then you add on the 25% boost and it'll be worth £85k ish in real terms.

    In other words, if you decide you are going to use LISA to hold a large pile of cash from age 33 to 60, you are just going to get 25% total growth in real terms, and be sitting on £85k instead of instead of doubling or tripling your money to more like £150-200k.

    You can say of the 25%, "it's guaranteed whereas investment growth isn't", but using cash only in the LISA instead of investments is a little crazy over such a long timescale. It is better to use investments in the LISA so you get the 25% guaranteed growth *and* the investment market returns over multiple decades which will be virtually guaranteed to outperform cash even if the 25% wasn't available, which it is.

    If you want a hint as to whether it is sensible to hold money in the form of cash for a 20-30 year timescale, take a look at what your company pension is invested in. It's not in cash, because the interest rates on cash could never generate anywhere near enough to pay a decent pension at the end. It's in investment funds. Really for a now-to-retirement kind of timescale the only sensible options are further pension or LISA, both using investment funds. In your shoes if I could spare the £4k a year and wouldn't need it back in the next ten or twenty years I would be maxing out the LISA.
    Last edited by bowlhead99; 20-04-2017 at 8:15 PM. Reason: Silly maths error
    • EJS_Superted
    • By EJS_Superted 22nd Apr 17, 9:49 PM
    • 17 Posts
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    EJS_Superted
    • #6
    • 22nd Apr 17, 9:49 PM
    • #6
    • 22nd Apr 17, 9:49 PM
    What age do you plan to retire? I am the same age as you and going to open a LISA. The main reason is that I am concerned about my retirement age, which seems to be going up faster than I am getting older! I have an employer pension linked to my state pension age, taking it earlier is heavily penalised. So in order to retire before then or at least slow down a bit I need something to bridge the gap between my semi-retirement and my actual retirement age. I don't really want to commit to a private pension as I don't know what the future holds and maybe I will want to keep working to 70something after all. The LISA seems like a good way of keeping options open whilst investing in a way that will actually be worthwhile.
    • adonis10
    • By adonis10 22nd Apr 17, 10:07 PM
    • 1,263 Posts
    • 140 Thanks
    adonis10
    • #7
    • 22nd Apr 17, 10:07 PM
    • #7
    • 22nd Apr 17, 10:07 PM
    What age do you plan to retire? I am the same age as you and going to open a LISA. The main reason is that I am concerned about my retirement age, which seems to be going up faster than I am getting older! I have an employer pension linked to my state pension age, taking it earlier is heavily penalised. So in order to retire before then or at least slow down a bit I need something to bridge the gap between my semi-retirement and my actual retirement age. I don't really want to commit to a private pension as I don't know what the future holds and maybe I will want to keep working to 70something after all. The LISA seems like a good way of keeping options open whilst investing in a way that will actually be worthwhile.
    Originally posted by EJS_Superted
    No idea, 60 ish would be nice but no doubt by that time it will be a case of work until you drop dead which is happy days for the government as they don't have to shell out for you.

    I guess it's just a case of squirrelling away as much as possible whilst feeding the rich for their comfy retirement. Ho hum.
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