Retirement Account or LISA?

londonlydia

Hi

Just this week I sent the form off to my employer's pension organiser to start contributing to the retirement account aspect of my company pension. I've never paid into this before, and decided it was probably time to start doing so. However, now I've heard about the LISA, I'm wondering if that would have been a better choice?

To give context, I turned 30 in January, and have been working for the company for 6.5 years. Since joining I have been paying 4% of my salary each month into a salary sacrifice scheme (DB) for my 'core pension'. This is a form of final salary scheme, and when I retire I get a pension based on my final 3 year's salary average. In addition to that, I have a Retirement Account, which is an additional pension invested with Standard Life. Into this my employer pays 2% of my salary, and up until this week I didn't pay anything. I should add that our pensions contributions are taken pre-tax, so I pay less NI.

This week I sent off a form meaning that I would start paying into my retirement account from next month, as I have always planned to up my contributions on each of my decade birthdays. I read the guides that go with my pensions, and after three hours I'm still not convinced I understand them! In the end I decided to start paying £320 extra per month into my RA.

Now I've heard about the LISAs though, I'm concerned that what I should have done is divert some or all of that extra cash into a LISA. The specific reasons for this doubt are that I'm not sure which has the better ROI, and also, is it wise to distribute my investments anyway?

I should add that I can't use the LISA for a FB purchase, as in the past I had a mortgage briefly (though don't now). So this purely about retirement....

pathtofreedom

Lisa's don't start till next april, so maybe do what you're doing this year, and have another think next year if you want to switch it.

kidmugsy

If you are making the extra pension payments by salary sacrifice and thereby reducing your National Insurance Contributions, then that's probably a better bet than a LISA.

If a government scraps sal sac for pension contributions, then you'd find a LISA a better bet (unless you were a higher rate taxpayer). In your shoes I'd open an ISA next year if only with £1, so that I'd have "booked" the opportunity to use it in future up to my 50th birthday.

One other thought: tying up money in a pension until you are (about) 60 is very inflexible: have you built up an emergency cash fund first? Note that LISAs are intended to be more flexible than pensions: you will be able to withdraw money when required, albeit with a penalty.

grey_gym_sock

you mention ROI. more-or-less the same investments are available inside an ISA (including a LISA) as in a pension. so there is no big difference. ROI depends on which investments you pick.

the time until you can access LISA vs a pension is very similar. pensions are currently at age 55, but will apparently rise to 57 by 2028, and perhaps continue to rise. LISA will be at 60, and the first people that applies to will get access in 2037. so there will probably be little difference in the ages for access by then.

the LISA bonus gives you 25% . with a salary sacrifice pension, assuming you are a basic-rate taxpayer (and it's better again if you're on higher rate), it costs you £68 to put £100 in the pension. you get £25 out tax-free, and might pay income tax on the other £75; if that's at 20%, it's £15 tax, so you get out £85 in total. turning £68 into £85 is a 25% bonus, the same as LISA. but you might have spare personal allowance when you're drawing the pension, in which case you turn £68 into £100, which is a 47% bonus. so the pension could be the same or better than LISA. it's unlikely to be worse, unless you become a higher-rate taxpayer in retirement.

RickyB2000

Though it depends on time scale until retirement and risk of legislative changes, BRT may be 40% by the time you get there - so a LISA would then be better than a pension.....

Bit of both is probably a good hedge.