Deposit LISA into a pension?

cjv

Is it possible to save into a LISA until age 60 and then pay the funds into your pension over several years to gain even more from tax relief?

Alexland

Yes if the rules don't change.

I plan to recycle some of my LISA into my younger wife's pension until she turns 60 when we would recycle her LISA into her pension until she is 75. That will be over 20 years of recycling money which won't complete until my early 80s.

Currently circa £12k but we haven't made this year's contributions yet which should bring us up to £22k. That's already over 7 years of £2,880 contributions in current spending power.

The rest of my LISA is going into my son's house deposit. He will be in his early 20s when I am 60. With luck there might be the chance to recycle into a FTBer scheme of the future.

If there are any leftovers (depending on investment growth and future house prices) they might be used to pay for cars and holidays. Our core retirement living costs will be covered by our pensions.

Alex

Zorillo

It might be, but nobody knows how the land will lie in a minimum of 19 years time, do they?

As the rules stand today, it's exactly what I'm planning to do when my LISA 'matures' in 25 years time.

cjv

Interesting. I was planning to ditch my LISA after using it for a property purchase, but now It seems like a good way for me to save long term.

My employer seems to think work place pensions don't exist and I am still waiting to be enrolled after 5 months. I have opened a SIPP for now, but may also keep my LISA funded to help save for retirement.

Also Alex, thanks for the financial advice. I will trade my girlfriend in for a younger model asap!:D

eskbanker

cjv wrote: »

I was planning to ditch my LISA after using it for a property purchase, but now It seems like a good way for me to save long term.

Only if you shift from the cash version (for the property purchase) over to a S&S one for retirement planning, assuming this will be over a period of 20+ years, during which time cash deposits are unlikely to deliver anything like the same level of return as investing and could even lose money in real terms when inflation is factored in....

cjv

That's the plan eskbanker, I recently switch the LISA from S&S to Cash as my timescale to purchase a property changed drastically.

I will get the LISA back into S&S after it has been used for my deposit.

Reed_Richards

cjv wrote: »

Is it possible to save into a LISA until age 60 and then pay the funds into your pension over several years to gain even more from tax relief?

I would say no. Any money you withdraw from an ISA is free of income tax. Any money you withdraw from a pension is taxed as income. So if you switch money from an ISA to a pension you are losing tax relief, not gaining. You should make pension contributions from income because those contributions are free from income tax.

Zorillo

The money in an ISA has already had tax paid on it. If you subsequently put it in a pension, you get tax relief on it, same as any other money.

Money in a LISA has already been taxed, but the bonus gives the tax back (assuming basic rate). Withdrawing it and putting it in a pension would gain tax relief on top of the bonus.

Personally, I'm anticipating being a higher rate tax payer in the future so by paying money that has already been taxed at basic rate into a LISA, I receive a 25% bonus on it plus investment growth until I'm 60, and will then gain tax relief at (up to) 40% on putting the withdrawn money into a pension, and then I can either withdraw it tax free as a lump sump (as it will hopefully be <25% of my total pot) or withdraw it at basic rate.

If I'm not a higher rate tax payer at 60, or the next 30+ years go so spectacularly well I end up being a higher rate tax payer in retirement (ha!), the money can just stay in the LISA as a tax free pension supplement.

Alexland

Reed_Richards wrote: »

I would say no. Any money you withdraw from an ISA is free of income tax. Any money you withdraw from a pension is taxed as income. So if you switch money from an ISA to a pension you are losing tax relief, not gaining. You should make pension contributions from income because those contributions are free from income tax.

You are forgetting that when you contribute LISA money (withdrawn after age 60) into a pension you would get a further 25% bonus before the pension may be subject to income tax.

Alex

stphnstevey

Worth considering the Pension Lifetime Allowance in your sums. Even with modest pension savings, over 20yrs+ this could be a consideration and the Lifetime ISA used as an alternative to a pension on the boundaries of the allowance

Either way, with a modest 4k limit and goverments constantly tinkering with pensions, easy to keep pension and any other alternatives open. If you don't use Lifetime ISA allowance then the bonus is lost, with pensions at least you can carry forward some of the allowances from previous years

Alexland

stphnstevey wrote: »

Worth considering the Pension Lifetime Allowance in your sums. Even with modest pension savings, over 20yrs+ this could be a consideration and the Lifetime ISA used as an alternative to a pension on the boundaries of the allowance

Yup that's why I intend to recycle into my wife's pension not mine! She is already part time and will probably give up work completely if we have a second child. Want to ensure she has money when she inevitably outlives me.

Alex