Budget

Triumph13

We really need a 'Multiplication is commutative' button.

RickyB2000

I can see LISA being popular for one key reason, they are easy to understand, acting like a saving account.

I put money in and get a bonus . So I get free money I can see in my account. I understand that and free is free! Vs tax relief on a pension, boring sounds like something an accountant would say. Sounds complex
They can be held easily in cash, bought in local bank. Again, easy. Pension - stocks shares they lose value, need to talk to scary companies or pay an IFA. sounds hard and scary - no thanks
I can cash in whenever I want, like a saving account. Bit of a penalty but again easy. Pension can't touch for 40 years - what if I need the money!

ISAs also have a much better reputation than pensions

Snakey

zagfles wrote: »

Yes but there is therefore more tax to pay when you take it out!! It makes absolutely no difference to the end result!

Using your example:
Say compound interest at 5%.

Pension: pay in £68, grossed up to £100. Grows at 5% compound for 30 years, so grows by 4.3219 times giving £432.19.

25% tax free, taxed at 20% on 75% of it, gives £367.36 after tax.

LISA: pay in £68, with bonus added gives £85, grows at 5% compound so multiply by 4.3219 so £367.36

Had not realised this either. I always assumed that more money in there on Day One meant more money overall even if it was taxed on the way out because, y'know, there would have been more to grow. Now I see that's not the case at all. That makes lots of new things I've learned today! (Except I'll probably have to see it written down a few more times before it really sinks in.)

coyrls

zagfles wrote: »

Yes but there is therefore more tax to pay when you take it out!! It makes absolutely no difference to the end result!

Using your example:
Say compound interest at 5%.

Pension: pay in £68, grossed up to £100. Grows at 5% compound for 30 years, so grows by 4.3219 times giving £432.19.

25% tax free, taxed at 20% on 75% of it, gives £367.36 after tax.

LISA: pay in £68, with bonus added gives £85, grows at 5% compound so multiply by 4.3219 so £367.36

Assuming that the 75% is all subject to tax, which it may not be.

zagfles

Snakey wrote: »

Had not realised this either. I always assumed that more money in there on Day One meant more money overall even if it was taxed on the way out because, y'know, there would have been more to grow. Now I see that's not the case at all. That makes lots of new things I've learned today! (Except I'll probably have to see it written down a few more times before it really sinks in.)

Just think of it this way.

If you have £85 in an ISA, you'll get that back tax free including all the compounded interest on that £85.

If you have £100 in a pension, assuming basic rate tax in retirement and PA used up, you'll pay 15% of it to the govt.

So consider £85 of it yours now, and £15 of it the govt's.

You'll get the £85 back plus all compounded interest on it.

The govt will get the £15 plus all compunded interest on it.

As above multiplication is commutative, it doesn't matter what order you do it in. If f is the growth factor, then

100 * 0.85 * f is equal to 100 * f * 0.85

zagfles

coyrls wrote: »

Assuming that the 75% is all subject to tax, which it may not be.

Yup, the above applies only once the PA is used up.

Also if you die under 75 it can go tax free to your beneficiaries so that's worth bearing in mind too.

PensionTech

Yes but there is therefore more tax to pay when you take it out!! It makes absolutely no difference to the end result!

I understand multiplication; yes, this factor in isolation makes no difference, but it does make a difference when you combine it with others e.g. moving down a tax band.

saver861

Triumph13 wrote: »

Not nice if you lose your job and find you have to pay a 5% penalty to withdraw these funds and live off them before qualifying for benefits.

I would expect it would remain exempt other than if benefits were drawn and the LISA was later cashed in for anything other than the qualifying criteria, its likely the benefits might have to be paid back also.

It is still 25% - not going to get 25% returns anywhere else anytime soon. Two people saving for a house would have £50 in five years - £12.5k being the gift part. Better than a smack behind the ear with a wet kipper on a dull Monday morning!

RichandJ

At least there weren't any further changes to the DB regime (unless I've missed them & they're in the small print).

We have enough to do this year with last year's changes to the PIP, especially for those schemes that weren't aligned with tax year. Probably also going to see a huge increase in members wanting figures for new LTA. Hey ho, keeps me employed.

rpc

RichandJ wrote: »

At least there weren't any further changes to the DB regime (unless I've missed them & they're in the small print).

A change in public sector discount rates which will bump up employer contributions.

So he's getting more money to spend by taking more money from public sector employers whose money comes from the budget. All rather circular...

But that seems to be it.