SIPP or Lifetime ISA

thrifty_pete

I am getting close to the big 40 and should decide whether to open a Lifetime ISA (for the pension rather than property purchase) or perhaps a SIPP. My current employer doesn't offer a proper pension, so am I better off with a SIPP? The SIPP annual charges are likely to be 100 quid I think. So I would only be able to pay into the LISA for 10 years, which is 10 k of tax relief, or with the SIPP it would be out of gross income, so about the same? I'm a basic rate taxpayer. Perhaps the SIPP is better as you save on NI too?
Many thanks for advice!

Zorillo

What's your employer's excuse?

You could do both, put the maximum you can definitely afford to put away for retirement into a personal pension (not a SIPP), and any extra that you'd like to put away for retirement into a LISA. That's more or less what I do.

dunstonh

My current employer doesn't offer a proper pension

Why?
Everyone should be auto-enrolled now unless it is new company.

The SIPP annual charges are likely to be 100 quid I think.

Charges on ISAs and pensions are the same (if you go with an advanced pension option like a SIPP. Charges on PPPs and SHPs may be a little cheaper but same sort of ballpark.

Perhaps the SIPP is better as you save on NI too?

You dont save on NI with a pension unless you do it via the employer using salary sacrifice.

If you get tax credits, the pension may be better as it can increase tax credits whereas LISA does not.

thrifty_pete

dunstonh wrote: »

Why? Everyone should be auto-enrolled now unless it is new company.

I meant one where the employer contributes a meaningful amount - although perhaps 2% is "normal" now for private sector jobs?

dunstonh wrote: »

Charges on ISAs and pensions are the same (if you go with an advanced pension option like a SIPP. Charges on PPPs and SHPs may be a little cheaper but same sort of ballpark.

OK, do you mean some underlying statutory charge HMRC make for reporting? Halifax for example charge 12.50 a year for an ISA but 22.50 a quarter for a SIPP

dunstonh

OK, do you mean some underlying statutory charge HMRC make for reporting? Halifax for example charge 12.50 a year for an ISA but 22.50 a quarter for a SIPP

Firms are free to charge what they like but most platforms charge the same across most wrappers. (offshore bond is the one that tends to be higher. Most have the ISA, PPP/SIPP and GIA the same)

Bimbly

You should contribute to your works pension to get the maximum contribution from the employer. Even if it's only 2%, that's 2% you weren't getting otherwise ("free money") and with auto enrollment, that is due to rise.

After that, you could simply just add more to the works pension. This is the easiest solution.

Reasons to consider putting money elsewhere could be:

1) You want to retire earlier than the date allowed on you works pension (money in a SIPP can be accessed at 55 currently (likely to rise to 57 for you)).

2) You don't like the way your employer pension is invested or the charges.

With a Lisa, your money is tied up until 60 (unless you are buying your first home, which I assume is not applicable to you). The advantage is that, if you really needed the money in an emergency, you can take it out of the Lisa, although you will pay a penalty. That is also a disadvantage in that it's not truly locked away until retirement.

With a SIPP, you can access your money at 57 and do what you like with it. In the meantime, you need to manage your investments and decide where to put your money. There will also be charges -- platform charge, plus fund charges. They could be more than the works pension.

EDIT: Have just realised you are nearly 50. You have to open a Lisa before you are 40, which takes it off the table for you.

What's the work pension actaully like in terms of charges and investments? When could you access your money if you were looking to retire early? What do you think about just contributing more there?

Nothing wrong with also opening a SIPP. At least you'll be doing the sensible thing and saving more for retirement.

AnotherJoe

Bimbly wrote: »

EDIT: Have just realised you are nearly 50. You have to open a Lisa before you are 40, which takes it off the table for you..

The OP said

I am getting close to the big 40

Bimbly

You're right, Joe. Obviously a case of Sunday morning brain, there...