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  • FIRST POST
    • JustAnotherSaver
    • By JustAnotherSaver 8th Jan 18, 9:27 PM
    • 2,825Posts
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    JustAnotherSaver
    A question regards S&S LISA or Pension
    • #1
    • 8th Jan 18, 9:27 PM
    A question regards S&S LISA or Pension 8th Jan 18 at 9:27 PM
    I was planning to get in to this topic properly some time in a few months when i have time to research it more but today i just felt the need to ask this question...

    Lately i've been reading other peoples threads, not commenting (rare for me ) but just reading. They may be on LISAs or one of the top helpers of the forum may touch on the topic

    and to be honest it baffles me (as to whether i should go the LISA route or pension route).

    I did plenty of reading, forums, websites, books which drew me to the conclusion i should go the pension route. Then after i had made that decision and placed my money ... the advice seemed to be suggesting otherwise. It leaves someone like me with little knowledge & confidence wondering what's best for me.

    So let's take a scenario...

    * KEY POINT .... basic rate tax payer throughout ones lifetime.
    So let's forget all talk of "if you were a higher rate tax payer" - let some higher rate tax payer ask that question but that's not me so we're talking basic rate here.

    * So you begin today, age 35 and you wish to retire at age 65. (I'm 34 and started a few years ago but we'll go with 35 & 65 for the example here)
    * You invest £250 per month ... so £3k per year, each year every year and this doesn't change (to make this example as simple as possible)
    * This goes in to the VLS80 fund. This never changes. You use this 1 and only fund for your entire investing life.


    *** You can do this in either a pension wrapper or a S&S LISA wrapper (let's assume the platform charges are as similar as can be).

    So aged 65 you would've been better off doing it in which format and why?



    I'm trying to pick apart other peoples threads and posts but i often get smashed in the face with 'higher rate tax payer' talk that doesn't apply to me so once i've waded through that and this variable and that variable i'm left all dazed and confused.

    Obviously some things will change in my scenario there. I probably wont retire at 65, i will increase my contributions as time goes on, i may not invest in only 1 fund for my whole life and it may not be Vanguard throughout (& it's currently VLS100 anyway) but for the purpose of the example i just wanted to do away with as many variables as possible to try and understand what is better for my own personal situation.

Page 1
    • DrEskimo
    • By DrEskimo 8th Jan 18, 9:51 PM
    • 14 Posts
    • 11 Thanks
    DrEskimo
    • #2
    • 8th Jan 18, 9:51 PM
    • #2
    • 8th Jan 18, 9:51 PM
    Interested to read the replies as this came up in my thread too.

    Although I do pay the higher tax rate....
    • TheShape
    • By TheShape 8th Jan 18, 9:58 PM
    • 1,185 Posts
    • 970 Thanks
    TheShape
    • #3
    • 8th Jan 18, 9:58 PM
    • #3
    • 8th Jan 18, 9:58 PM
    For me (39, basic rate taxpayer) the LISA with it's bonus equivalent to tax relief and tax free on withdrawal has significant appeal. I am intending to do all I can to ensure I make full use of my LISA allowance in the next 11 years.

    If you are still working past the age of 60 you'd be able to take the LISA funds (on which you'd received the govt bonus) and pay as much as possible into your pension getting tax relief on those contributions, effectively getting 'double tax-relief.

    Important for me to mention that I pay into a civil service pension so I'm not making a choice between LISA and pension.
    • JustAnotherSaver
    • By JustAnotherSaver 8th Jan 18, 10:30 PM
    • 2,825 Posts
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    JustAnotherSaver
    • #4
    • 8th Jan 18, 10:30 PM
    • #4
    • 8th Jan 18, 10:30 PM
    I forgot to add -

    so as to not try and confuse this in any way and make it overly complicated then i'd just ask for people to forget about workplace pensions when answering, forget about salary sacrifice (not available to me anyway) and i think those two cover the things that crop up unless i've missed something.

    Right now my SIPP is with Cavendish so i'm pretty much wondering whether it's better to go with that or a S&S LISA.

    For me (39, basic rate taxpayer) the LISA with it's bonus equivalent to tax relief and tax free on withdrawal has significant appeal.
    It appeals to me also but what i'm wondering is what is best (for me).

    Just having another look at the LISA rules and you can get the bonus up until you're 50? So i guess after 50 then anything you pay in receives zero bonus.

    So on that note, assuming after feedback from the knowledgable folk here that a LISA may indeed be better for me then - would the better option be to pump my monthly contributions in to a S&S LISA until my 50th birthday and then after that switch the monthly contributions in to my SIPP?

    • TheShape
    • By TheShape 8th Jan 18, 10:34 PM
    • 1,185 Posts
    • 970 Thanks
    TheShape
    • #5
    • 8th Jan 18, 10:34 PM
    • #5
    • 8th Jan 18, 10:34 PM
    You can't pay anything in after 50!
    • Alexland
    • By Alexland 8th Jan 18, 10:37 PM
    • 1,102 Posts
    • 730 Thanks
    Alexland
    • #6
    • 8th Jan 18, 10:37 PM
    • #6
    • 8th Jan 18, 10:37 PM
    Assuming you are basic rate, not benefiting from employer matched contributions and not getting salary sacrifice NI savings then the tax relief on contributions to a pension are the same as a LISA bonus.

    However the LISA is not taxed on withdrawal and a pension might be (depending on your tax rate in retirement). But a pension is accessible earlier (unless you want to pay the LISA withdrawal penalty) and may have lower fees in the accumulation phase. Even a 0.2% fee difference can compound up over time.

    Personally we do both. It depends on your circumstances.
    Last edited by Alexland; 08-01-2018 at 10:39 PM.
    • JustAnotherSaver
    • By JustAnotherSaver 8th Jan 18, 11:42 PM
    • 2,825 Posts
    • 460 Thanks
    JustAnotherSaver
    • #7
    • 8th Jan 18, 11:42 PM
    • #7
    • 8th Jan 18, 11:42 PM
    Assuming you are basic rate, not benefiting from employer matched contributions and not getting salary sacrifice NI savings then the tax relief on contributions to a pension are the same as a LISA bonus.
    Originally posted by Alexland
    Ah i knew there was one i missed.
    If my employer could get out of paying into the WPP then they would so matched contributions will never ever happen. The only way that will ever work is if i change employer and obviously if they offered such a thing then i'd be milking it.

    But a pension is accessible earlier (unless you want to pay the LISA withdrawal penalty)
    I'm guessing this is the big sway for many then and the source of a lot of should i shouldn't i?

    For me though it's irrelevant because a pension is currently 55 and a LISA is currently 60 and i'll be having to work beyond both of those.

    and may have lower fees in the accumulation phase. Even a 0.2% fee difference can compound up over time.
    Are we talking platform charges here? For example - the 0.45% that HL charge or are we talking something else entirely?

    If i've understood it right then it's something i'll need to take a closer look at, thanks.

    • Amoux
    • By Amoux 9th Jan 18, 12:13 AM
    • 7 Posts
    • 7 Thanks
    Amoux
    • #8
    • 9th Jan 18, 12:13 AM
    • #8
    • 9th Jan 18, 12:13 AM
    For a basic tax payer, the LISA to me seems like the most tax-efficient vehicle for pension saving. The bonus is effectively the same as basic tax relief you get in a SIPP and the LISA is even more tax efficient as you can withdraw the entire pot tax free. You can also avoid any pesky drawdown fees.

    There are a few caveats but none which can't be worked with. 1) You cannot save more than £4000 per tax year. 2) You have to be 60 before you can withdraw any money and 3) You won't get any government bonus after your 50.

    So my strategy would be save the maximum into the LISA at least until I'm 50 whilst save any pension remainder into my SIPP. When I'm 50 I'd switch to investing solely in the SIPP. Finally the leftover savings I put in my S&S ISA can be used for even earlier retirement if I wanted.
    • kidmugsy
    • By kidmugsy 9th Jan 18, 12:44 AM
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    kidmugsy
    • #9
    • 9th Jan 18, 12:44 AM
    • #9
    • 9th Jan 18, 12:44 AM
    The big unknown is what changes in the rules might happen across the decades. But as things stand I agree with Amoux, Alexland, and TheShape.
    Fill up a LISA first.

    I suppose it's also obvious that you'd want enough pension to produce income that would at least fill the gap between the Personal Allowance and the State Retirement Pension. That could always be attended to later in life under the rules prevailing at the time.
    Free the dunston one next time too.
    • Alexland
    • By Alexland 9th Jan 18, 7:48 AM
    • 1,102 Posts
    • 730 Thanks
    Alexland
    Are we talking platform charges here? For example - the 0.45% that HL charge or are we talking something else entirely?
    Originally posted by JustAnotherSaver
    Yes the fees on pensions can be lower than LISAs during the accumulation phase. For example the total platform and fund fees on my pensions work out at 0.33% but I am paying 0.62% total fees on my LISA so 0.29% extra. As I contribute more into my pensions I expect my fees to reduce to 0.31% this year, possibly less with growth, so my LISA fees will be double!

    In 18 months when the LISA balances get to £15k+ then we will switch to capped platform fees for holding ETFs so the fees will come down a bit. Still over the lifetime of the investment the LISA fees are likely to be higher. This is due to the less competitive market and the £4+1k annual limit makes it slow to accumulate a substantial account valuation to really get the benefits of fixed platform charges.

    However in the retirement phase some platforms charge drawdown fees on pensions....

    Alex.
    Last edited by Alexland; 09-01-2018 at 8:59 AM.
    • jamei305
    • By jamei305 9th Jan 18, 8:14 AM
    • 273 Posts
    • 327 Thanks
    jamei305
    Another thing to consider is that just like ISA savings, money in a LISA will affect your eligibility to means-tested benefits, unlike a SIPP.

    This might not seem important now but there are all sorts of scenarios where it might come into play. Perhaps by the time you're 58 the NHS won't be totally free any more and you'll have to contribute to expensive caner treatment for example if you have enough savings. If the money is in a pension rather than LISA it wouldn't be relevant in such situations.
    • Alexland
    • By Alexland 9th Jan 18, 12:29 PM
    • 1,102 Posts
    • 730 Thanks
    Alexland
    Another advantage to doing both is you can hold the higher volatility and historically higher return assets in your LISA (so the potentially higher growth wil not be taxed on withdrawal) and the less volatile lower growth bonds, etc in your pension so your overall retirement savings are within your target risk profile but you have further optimised your tax position. This is also part of my thinking to avoid pension LTA issues later in life.

    When moving to a capped fee ETF LISA then I plan to use just the iShares Core MSCI World SWDA for this purpose and then tidy up to my target allocation using HSBC GS Balanced in my SIPP and a few Fidelity stock market (inc UK as I value some home bias), govt bond and cash funds in my workplace pension.

    I also prefer to take more risk in accounts that have regular monthly or annual contributions as losses are less noticeable and pound cost averaging works it's magic.
    Last edited by Alexland; 09-01-2018 at 1:46 PM.
    • kidmugsy
    • By kidmugsy 9th Jan 18, 12:32 PM
    • 9,982 Posts
    • 6,738 Thanks
    kidmugsy
    Another thing to consider is that just like ISA savings, money in a LISA will affect your eligibility to means-tested benefits, unlike a SIPP.

    This might not seem important now but there are all sorts of scenarios where it might come into play. Perhaps by the time you're 58 the NHS won't be totally free any more and you'll have to contribute to expensive caner treatment for example if you have enough savings. If the money is in a pension rather than LISA it wouldn't be relevant in such situations.
    Originally posted by jamei305
    I can imagine the pension savings of anyone over 55 being included in a means test. Why on earth should they not be?
    Free the dunston one next time too.
    • jamei305
    • By jamei305 9th Jan 18, 12:53 PM
    • 273 Posts
    • 327 Thanks
    jamei305
    I can imagine the pension savings of anyone over 55 being included in a means test. Why on earth should they not be?
    Originally posted by kidmugsy
    People often talk about SIPPS being accessible from 55 on here, but within 10 years it will be 58. For anyone in their thirties it is likely to be higher.

    Anyway the point is that pre-retirement, your pensions won't be regarded as your savings for the purposes of means-testing state benefits, which could include health & social care.
    • JustAnotherSaver
    • By JustAnotherSaver 9th Jan 18, 9:30 PM
    • 2,825 Posts
    • 460 Thanks
    JustAnotherSaver
    Another thing to consider is that just like ISA savings, money in a LISA will affect your eligibility to means-tested benefits, unlike a SIPP.
    Originally posted by jamei305
    And this is pretty much THE reason i took what i had built in my S&S ISA (£7k i think it was) and put it in to a SIPP with Cavendish.

    I saw it happen first hand with my mother. She worked all her life from the age of 14. Some times she had 2 or 3 jobs to make ends meet when i was much younger. She wasn't a sit on her bum and scrounge type person feeling sorry for herself - she went out & worked.

    Then literally a month after she turned 40 health-wise she started to go downhill. Within 12 months she had to give up work & has been out of work since - that was 2003.
    I know she picks up 2 forms of benefits and one of them is means tested. Never did she think she'd be in this position but that's the point - you don't know what tomorrow will bring.

    I went to school with a lad who had an op on a brain tumour. 5 years in he still can't function properly whereas he was a fit lad beforehand.

    And that again is the point - you just never know.

    If there were clear advantages for one then i don't know, i may be more inclined to take the risk, but because i've seen people end up in positions where they can't work who never thought it would happen to them, it just makes you think a bit.

    I'm not trying to make out like i'm a rare breed here. I'm sure many reading this will know of people who've ended up in the position i've just mentioned with those 2 people but that sort of thing gets me thinking.

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