SIPP via Lifetime ISA for retirement

stardust09

I'm 39 years old and self-employed. Most years I'm in the 20% tax bracket and occasionally I might slip just into the 40% tax bracket, but only by 1-3k.

I know I need to sort out some pension provision as I haven't been paying into anything for the last 5 years but am not sure whether to go for a SIPP or a LISA. My concerns about the LISA is the current lack of clarity about what will happen once I'm 50, although I can't imagine they would stop people being able to contribute, unless that makes it difficult to calculate who is and isn't eligible for the bonus. And, as with all these new products, I don't know how much to trust the government not to change the rules for them (for the worst) later on, whoever is in power then.

I only want a simple S&S pension, starting with a VLS fund (60 or 80) or maybe the Woodford Equity Income fund. I already hold both of these in my (very small) S&S ISA, along with a small cap fund. I won't be in a position to pay a lot into each year but I figured that something is better than nothing.

My thoughts are that with the LISA, the 10k bonus I'd get over 10 years if I could max the payments would be tax-free on retirement and, in extreme circumstances, I'd be able to access my money (at cost, I know) at any point. A SIPP would be taxable when I access it at retirement and the money locked away.

I only have a few months to decide, otherwise I'll be too old for the LISA. Has anyone got any thoughts on this?

Thanks.

kidmugsy

Open the LISA at the first opportunity and then don't fill it up until you've had months more to think the matter over.

sandsy

The rules of a LISA are that contributions can only be made up to age 50. Further, you can only access the fund at 60 whereas it's 55 for a pension.

The bonus on a LISA is no greater than the tax relief on a pension. If you invest £40k in a LISA, you get a bonus of £10k. If you invest £40k in a pension, you get tax relief of £10k as a 20% taxpayer - but it could be more as a 40% taxpayer.

The LISA money is taxfree when paid. The pension money is 25% taxfree and then taxed at your marginal rate once you exceed to personal allowance.

If you do want a LISA, you need to open it before your 40th birthday. You can open a pension any time - if you're a 40% taxpayer this year, making a pension contribution before 5 April would be a good move.

Kynthia

Open a LISA so that you keep your options open. Then you can decide later. I believe it's much better for you to contribute to a pension the years that you are paying 40% tax. So if you prefer the LISA you could stick with that most years but contribute to a SIPP the years you earn more and claim back the extra tax relief from the HMRC. Then once you are over 50 you can just contribute to the SIPP. Diversifying spreads any risks you feel you have by just having one or the other.

simonfitba

I've been pondering this too. Think I'll reduce my pension contributions and divert £4k a year into LISA.

PS. The OP will probably only be able to get pension at 57/58, not 55. So it's not much more time to wait to get access to LISA.