SIPP vs LISA

moneymagic

My husband is currently autoenrolled in NEST with pretty poor employer contributions (currently the bare minimum). He is a basic rate taxpayer and, being 31 and with quite a small pension pot he is keen to build this up as much as possible. Given the limited investment options with NEST and his hope that he will eventually move company in the next few years and maybe in a much better pension scheme he is toying with contributing to either a SIPP or LISA for retirement.

My personal opinion is that he should contribute to a LISA for now for the government bonus and the ability to withdraw whatever after 60 without any taxation. If he becomes a higher rate taxpayer (may or may not happen) he could open a SIPP at a later date if his workplace pension is not sufficient.

The amounts that he would be contributing would probably be less than 4K a year at this stage.

Does this seem like a decent strategy? Do you think it would be better opening a SIPP now rather than a LISA? Any other factors we should be considering in our decision (aware of the age difference between SIPP and LISA and the taxation differences)

TIA

MM

masonic

The other difference to consider is that investments in a LISA count towards your assets for means-tested benefits should you ever need to claim them (since the money is available to you, albeit at a penalty), whereas investments in a SIPP do not. The difference between the age you can access a SIPP and a LISA may not be there by the time your husband reaches that age.

Presumably he doesn't have the option to invest in the workplace pension via salary sacrifice?

moneymagic

He doesn’t contribute via salary sacrifice (I believe), and employer only contributes max 3%. He could contribute more to his workplace pension but I do think the money could be better invested somewhere else.

Given that we also have cash savings and other investment isas, the means tested benefits issue is not a huge concern for us

Alexland

I agree for a basic rate taxpayer who is already getting max employee matching and does not get salary sacrifice on additional contributions then a S&S LISA is a good option provided the other terms (later access date, risk of it being assessed for benefits, slightly higher ongoing charges, etc) are acceptable.

kidmugsy

Another modest advantage of a LISA is that he could open a Cash LISA and earn (a little) interest while he waits for a market crash before investing in Stocks and Shares. This strategy is called "market timing" and is reckoned a great sin by many posters here.

The only Cash ISA at the moment is the Skipton's but the Nottingham BS has said that it plans to offer one in this tax year.