2016 Budget - ISA changes

Cisco001

masonic wrote: »

Anyone not using the money to buy a first property in the short term and instead investing for retirement should be looking beyond cash. Cash rates barely keep up with inflation over the long term.

However, i look at it as this way.
The extra 25% is roughly the same as tax free in pension if you are on basic tax rate,
But this cash in lifetime isa wont subject to tax when you are being paid at 60. Pension will subject to tax apart from the first 25% withdraw.

Then, i need to make a decision if i want to stick the money in pension, which will be having more growth but subject to tax.
Or this lifetime isa with possibly 1% interest

masonic

Cisco001 wrote: »

However, i look at it as this way.
The extra 25% is roughly the same as tax free in pension if you are on basic tax rate,
But this cash in lifetime isa wont subject to tax when you are being paid at 60. Pension will subject to tax apart from the first 25% withdraw.

Then, i need to make a decision if i want to stick the money in pension, which will be having more growth but subject to tax.
Or this lifetime isa with possibly 1% interest

Why are you continuing to be fixated with irrelevant "interest"? The post of mine you quoted has already made the point that cash should be avoided if you are investing for the long term. You would not hold cash in a pension, so why would you hold cash in this new pension equivalent?

Your decision is whether you should:

A) Pay into a pension, with possible salary sacrifice equivalent to a 32% 48% bonus and employer matching equivalent to a 50% bonus, but be taxed on the way out, which might cost you 20%

Pay into a LISA, with 25% bonus and not be taxed on the way out if you hold until 60.

For the first part of your retirement savings above the state pension (if you still qualify for that at the time ), a pension may be better as it may fall within your personal allowance.

For those with a lot of pension savings, the LISA may work out a better deal overall.

Once in the pension or in the LISA, you should be investing the money in a broad mix of asset classes but primarily equities, reducing your equities exposure as you approach the time when you are going to use the money in retirement.

Former_MSE_Andrea

Hi everyone, just in case you haven't seen it, you might like to read MSE's take on the Budget ISA News too.

Andrea

Cisco001

masonic wrote: »

Why are you continuing to be fixated with irrelevant "interest"? The post of mine you quoted has already made the point that cash should be avoided if you are investing for the long term. You would not hold cash in a pension, so why would you hold cash in this new pension equivalent?

Your decision is whether you should:

A) Pay into a pension, with possible salary sacrifice equivalent to a 32% bonus and employer matching equivalent to a 50% bonus, but be taxed on the way out, which might cost you 20%

Pay into a LISA, with 25% bonus and not be taxed on the way out if you hold until 60.

For the first part of your retirement savings above the state pension (if you still qualify for that at the time ), a pension may be better as it may fall within your personal allowance.

For those with a lot of pension savings, the LISA may work out a better deal overall.

Once in the pension or in the LISA, you should be investing the money in a broad mix of asset classes but primarily equities, reducing your equities exposure as you approach the time when you are going to use the money in retirement.

Regarding the bonus from work pension. My company only match up to 6%. e.g. if I pay 10%, they are still paying 6%:(

jimjames

MSE_Andrea wrote: »

Hi everyone, just in case you haven't seen it, you might like to read MSE's take on the Budget ISA News too.

Andrea

Just a shame that the misleading headline still hasn't been corrected. It's not true that only cash ISAs have been increased to £20k

masonic

Cisco001 wrote: »

Regarding the bonus from work pension. My company only match up to 6%. e.g. if I pay 10%, they are still paying 6%:(

So does mine, but you'll get no employer matching at all in a LISA.

I should point out I made a mistake in my earlier post regarding salary sacrifice. Since this avoids a total tax (income + NI) take of 32%, it's equivalent to a 48% bonus on the income after tax+NI at the basic rate. So that's considerably better than the 25% bonus offered in the LISA scheme.

atypical

masonic wrote: »

So does mine, but you'll get no employer matching at all in a LISA.

I should point out I made a mistake in my earlier post regarding salary sacrifice. Since this avoids a total tax (income + NI) take of 32%, it's equivalent to a 48% bonus on the income after tax+NI at the basic rate. So that's considerably better than the 25% bonus offered in the LISA scheme.

Salary sacrifice also avoids the 9% student loan repayments for graduates. Including this, the 'bonus' is 69%.

As most graduates are never expected to repay their loans before they expire in 30 years this is a genuine saving (not just deferring repayments that will eventually be made anyway).

If employers also share their 13.8% NI saving, graduates paying basic rate get a £100 pension contribution for £52. Higher rate grads pay c£43.

Hibernator

masonic wrote: »

So does mine, but you'll get no employer matching at all in a LISA.

I should point out I made a mistake in my earlier post regarding salary sacrifice. Since this avoids a total tax (income + NI) take of 32%, it's equivalent to a 48% bonus on the income after tax+NI at the basic rate. So that's considerably better than the 25% bonus offered in the LISA scheme.

My employer told me NI tax (unlike income tax) is still applied to salary deductions for personal/company pension contributions.
If I'm wrong and it isn't applied then: NI tax rate is tapered Eg 0% on your weekly earnings below the Primary Class1 threshold, ~12% on weekly earnings from that threshold up to the Primary Class1 Upper Earnings Limit threshold, and 2% applied to any weekly earnings above this. So depending on your salary and the amount of your pension-deduction salary sacrifice, you'd hypothetically be avoiding paying 12% NI or just 2% NI.

MDMD

Hibernator wrote: »

My employer told me NI tax (unlike income tax) is still applied to salary deductions for personal/company pension contributions.
If I'm wrong and it isn't applied then: NI tax rate is tapered Eg 0% on your weekly earnings below the Primary Class1 threshold, ~12% on weekly earnings from that threshold up to the Primary Class1 Upper Earnings Limit threshold, and 2% applied to any weekly earnings above this. So depending on your salary and the amount of your pension-deduction salary sacrifice, you'd hypothetically be avoiding paying 12% NI or just 2% NI.

If your employer operates salary sacrifice (they would also save their own NI too) then NI isn't paid on the pension payments, as you technically never got paid it and instead your employer paid more to your pension.

It appears your employer does not and is therefore costing themselves 13.8% of your pension payment in extra NI

Colesy93

Jonnybgood wrote: »

So theoretically I could pay in £8000 in 13 months and receive £2000 in bonuses? And on top of that, gain a bonus on my current Home Saver ISA if I transfer it to the Lifetime ISA during 2017/18...

Any update on this? I have had help to buy is a since December 2015 could I Carry on paying the 200PM up to March 2018 then open
Ifetime isa and transfer my help to buy isa into it and deposit £4000 and then £4000 the following month new financial year and then get £2000 bonus from deposits from life time isa and 25% from the money transferred from the help to buy isa into this account - potential to have a bonus off £3400 by April 2018? But due to needing account open for year get that bonus in April 2019