Life time ISA- comments please!

Firegirl

Has anyone had a think about the life time ISA?

I thought I'd start this thread to find out if people think it's a good idea and how they are going to make it work for them.

It sounds good and I'm wondering what the down sides are:

Early withdrawal has 5% penalty and you loose the govt incentive.
Long term investment for sure! 20 years for me!

edinburgher

I like:

• Tax free withdrawals
• The fact that it's another tax free wrapper to consider as part of retirement planning

I dislike:

• The fact that it counts against you for various benefits - so if you save hard for years and fall on hard times, you will have to sell up (losing the 'bonus' etc.) before these kick in
• The gimmicky nature of what isn't wildly different from a sensible drawn down pension pot for a basic rate tax payer
• The gamification of saving, it's all a bit too 401k for me
• The fact that it's 60 minimum for use in retirement - I know this is the way the wind is blowing - but it's tied up for longer than my private pensions currently are
• The fact that it's a worse deal than just paying into my pension with salary sacrifice (assuming that I can minimise tax on the way out)

I can see why they've created it, but it strikes me as quite a bit of smoke and mirrors around their stated intentions...

choccielover

edinburgher wrote: »

• The fact that it counts against you for various benefits - so if you save hard for years and fall on hard times, you will have to sell up (losing the 'bonus' etc.) before these kick in
  
  
  I can see why they've created it, but it strikes me as quite a bit of smoke and mirrors around their stated intentions...

Not only the bonus, all interest and growth gained from it and a 5% penalty on the whole fund (?!). seems a high price to pay.

It seems that the better option for (at least) the HRT payer is paying into a pension. At least up to the £40k annual limit.. Though getting the entirety of the pot tax free (as oppose to 25%) is attractive.

I'm not sure if we will take advantage of this new wrapper yet, need to hear more.

Firegirl

Oh thanks for this because I had been completely sucked in by the smoke and mirrors.

I don't like the idea of it going against benefits either. I think this will be a major factor for me as I have a long term health condition.

You know I think this is my queue to figure out pensions- I've always just paid in as much as my company would match but I've no idea even what my pension is currently worth!

edinburgher

It seems that the better option for (at least) the HRT payer is paying into a pension.

You're probably right there, even a basic rate tax payer with salary sacrifice is only 8%? worse off sticking with their pension. Put like that, it doesn't sound like a great deal for those of us earning under the higher rate threshold, my current thinking would be to consider this premium as 'insurance' against the possibility of needing to claim benefits ever. Hmmmm... maybe I'm overthinking that, liquid savings and investments mean that I'd need to spend 50% of them to claim anything means tested anyway...

The discussion is probably largely academic. If I could afford to pay into my employer pension, my regular ISA and afford the full allowance for the lifetime ISA, I'd probably be minted

Firegirl - well worth having a handle on your pension - nobody cares about your money as much as you do! :money:

It's well worth familiarising yourself with what your regular payments are, your year end balance is etc. If nothing else, it can help you spot mistakes, I've discovered two separate errors that would have cost me ££££ over the last few years if I hadn't taken an interest in how my pension works.

choccielover

What about the innovative finance ISA Ed?? Does that spark a little more interest for you?

P2P isn't something I've dabbled with but I know you like it

Firegirl

I've signed up to be able to view my pension on line now. All I know is I pay in the Max that the company will match.

So that's a good start! Glad I have a year to figure out pensions - and I'm guessing I could invest a small amount before im 40 to keep the option open to me.

I like the idea of 8% being like a premium for benefits, although there will probably be no benefits system to talk of soon enough!

RoaringTwenties

I have nothing useful to add finance advise-wise but I am still in a strop at being too old for this as I turned 40 last year <sulks>

edinburgher

choccielover wrote: »

What about the innovative finance ISA Ed?? Does that spark a little more interest for you?

P2P isn't something I've dabbled with but I know you like it

Absolutely, anticipating their arrival with eagerness, not paying tax on P2P really is a financial cherry on top :beer:

Firegirl

Roaring 20s- it looks like you aren't missing out on too much from what Ed and Choc have said. I still can't really work it all out yet.

I was thinking of using it like an offset savings account for my mortgage using a cash life time ISA because my mortgage can run until I'm 67. I have a flex mortgage at a rate of 0.99% so it would be a no brainier to save to the life time ISA rather than pay the mortgage or use the mortgage offset account.

But I have MS so I really don't know what the future holds in terms that at some point, hopefully not- I might need to claim benefits. So I need to start thinking of my pension as part of my investment portfolio than something to be forgotten about. I have quite a sum in a stocks and shares ISA at the minute anyway so no doubt that would be taken into account for benefits. But with that I guess if I saw it coming I could take it out and put it into my mortgage.

Started rambling there!

RoaringTwenties

I think you could be right Firegirl!

I hope you continue to keep well x