Pension or Lifetime ISA?

Johnsmith2016

Hello,

I am looking for some general advice on the above and which would be the best option for my situation and how both products work.

I am recently bankcrupt so only thinking about this in 12 months time at least. But from my bankcruptcy experience I want to ensure I have money for the future and never get in a mess again. Anyway thats a different story

I currently have no assets, no house or savings, no pension. I am under 40 so qualify for the lisa.

Generally speaking which is better? Once I am discharged and back on my feet would I be better starting a Lisa or pension?

Broadly speaking what are the pros and cons of each in laymans terms?

I would hope to retire at 60, or sooner if i could afford it.

Does the tax free of a pension beat a bonus of a lisa?

I have read about isa millionaires, who have done it within 31 years, how have they done this? Is this not purely a cash isa savings account have they invested it in shares? How does that work from within an isa? And do i have to pay someone to invest for me? As its long term i would be ok with moderate risk. Can anyone reccomend any good products, funds or managers i could look at ?
Any advice much appreciated

Theta101

Money has always burnt a hole in my pocket.
I've started savings accounts but then raided them.
I used to re-mortgage when ever there was a decent chunk of equity.
So for me paying the Maximum I can into a Pension pot would have made more sense.
In that I wouldn't be able to access it until I was 55.
If I put it into an ISA, I know it wouldn't be there for very long.

That's how I think now... could change!

Johnsmith2016

Never thought of it like that but i would probably be the same pension it is then.

Theta101

Also I'd check how the State Pension was doing.
If you need to make payments to qualify for the maximum, I'd make them!

The state pension is VERY generous now, IMHO.

sandsy

The tax relief on a pension contribution is the same amount as the bonus on a LISA per pound of contribution.
However, the bonus stops at age 50 on a LISA but the tax relief never stops on a pension if you keep contributing.
A Lisa can be accessed for a first house purchase or for retirement income but the latter cannot be taken before age 60. If you access it before, there is a penalty of 5% plus all the bonus is lost.
A pension can be accessed at 55 which may be valuable if you want to retire early (Max penalty likely to be 0%).
Contributions to a pension, inc. the tax relief and any employer contributions, are limited to the amount of income you earn each year, up to £40k.
Lisa contributions are limited to £4K pa on which the bonus is payable, or £20k across all isas.

If you choose wisely, the same investment options will be available to you in both a Lisa and a pension. Both offer the chance to invest in funds or individual stocks.

When accessed on retirement, you can drawdown from a Lisa tax free.
With a pension, you can take 25% tax free. If you draw the remainder at a level which keeps your total income under the personal allowance, there will be no further tax to pay, otherwise you'll be taxed at the usual marginal rate.

On death, the funds in a Lisa are part of your estate. The funds in a pension are in trust for a beneficiary you can nominate and fall outside your estate.

kidmugsy

Open a LISA, if only with a tenner; that keeps open the option of adding more until you're 50.

PensionTech

It may be worth saying that it's not clear yet whether LISA savings would be protected against bankruptcy, whereas pension savings are.

Also, are you employed? If so, saving into a pension will mean that your employer pays into it too. Free money. And you may be relieved of National Insurance on it too, not just income tax.

Another point that hasn't been made yet about tax is that you may be in a lower tax band during retirement than you are while you're saving - which can swing in the favour of pensions, because you defer your income tax until you're earning less and therefore liable for less tax. But in some cases LISAs would work out better, pound for pound (and investment for investment).