H.Lansdown & AJ Bell - Lifetime ISA

masonic

Probably best to go with a suitable multi-asset fund then, as you were considering.

Alexland

JustAnotherSaver wrote: »

I have a workplace pension which i currently pay the minimum in to, so right now that's hitting around £45-£50 per month give or take.

Assume that's the minimum to get the maximum employer matching? If you are earning basic rate then a LISA should beat SIPP contributions as it would give the same 25% government contribution but there is no tax on withdrawal. At this point it's not clear if your pension contribution rate would cause you to pay tax in retirement anyway but why take the risk?

Alex

JustAnotherSaver

Alexland wrote: »

Assume that's the minimum to get the maximum employer matching? If you are earning basic rate then a LISA should beat SIPP contributions as it would give the same 25% government contribution but there is no tax on withdrawal. At this point it's not clear if your pension contribution rate would cause you to pay tax in retirement anyway but why take the risk?

Alex

The maximum employer matching is the same as the minimum for me unfortunately. Unless i change jobs (unlikely in the near future at least) then i'm on the minimum contributions. Currently hitting around £23k per year approx & again unless i change jobs then i'll be a BR tax payer (or unless they drastically reduce the figure you start paying HR at).


The whole tax thing is something i struggle to wrap my head around to be perfectly honest & i'm pretty sure i've had it explained to me in the past but i've obviously forgotten.


My (clearly incorrect) understanding of it is that we currently pay 20% tax. The money goes in to the SIPP before it's taxed & it's taxed on the way out. The lowest i remember tax being was 17.5% & i imagine in 30-40 years it's only going to go north, not south. So what will we be looking at, 25%? 30%? Obviously it's guesswork.


You contribute to an ISA with money that's already been taxed. So it's already had its 20% taken & providing there's no dramatic change in how ISAs work in the next 30-40 years that's it, done with.



So i suppose it would actually be better going in to an ISA in that sense (though the charges are smaller on my SIPP due to HL charging 0.45%).


I think you're a HR tax payer? So where does the largest percentage of your retirement money go? I suppose the question would be better if you were a BR tax payer like myself & then we'd at least be comparing apples with apples.



Aside from my workplace pension i'm probably putting about £3000 in total in to my own retirement planning per year, not including my wife's pot, so i obviously don't even hit the limit for a LISA.


From what i have read on the retirement topic, i'm weary about being an eggs-in-one-basket person but out of interest how would you work that £3000? I don't mean which funds would you select but what would you put towards which wrappers, keeping in mind the charges for those wrappers also?

masonic

JustAnotherSaver wrote: »

The lowest i remember tax being was 17.5% & i imagine in 30-40 years it's only going to go north, not south. So what will we be looking at, 25%? 30%? Obviously it's guesswork.

Are you thinking of VAT? That's on top of income tax, although it doesn't apply to everything. The basic rate of income tax has been 20% for many years, although that could change in the future and is unlikely to go down, but I'd be surprised if it changed by much.

Given you are a basic rate taxpayer with a fairly poor workplace pension and presumably aren't expecting to pay higher rate tax in retirement, then in your shoes I'd value a SIPP and S&S ISA above a LISA. For the SIPP, the tax position is better than a LISA (because of the 25% tax free lump sum and possibly also unused personal allowance in retirement). For the S&S ISA, for the flexibility to access before a state-mandated retirement age. The LISA seems to combine the limitations of pension and ISA into one product.

The reason I have a LISA is I'll use it to draw a tax-free income above my personal allowance until it runs out, whereas if I took the same from my pension it would be taxable. In this instance it's better than taking money from my S&S ISA as it has had some tax relief on the way in.

Zorillo

If it helps, I'm a basic rate tax payer and also 35. Currently, I pay 10% of my salary directly into my workplace pension fund which is currently worth just less than twice my gross annual salary (sounds horribly small described like that)

In addition, I aim to fill a LISA each year. Currently that is funded from a modest inheritance but once we are over the child care hump in two to three years time then I'll be able to fill it from income, or at least that is the aim.

The LISA is with A J Bell and I pay two dealing fees per year, one when I deposit the lump sum and another when I invest the bonus. If I was a bit more patient I could reduce the fees to one

It's invested with VLS100 on the basis I don't want to touch it for 25 years or more. I imagine I will leave it in something like that until I'm 50 and then reduce to VLS60 or similar.

And the reason it's in a LISA and not a pension is that it's accessible at a cost if the proverbial every truly hits the fan.

JustAnotherSaver

masonic wrote: »

I'd value a SIPP and S&S ISA above a LISA.

Just curious why you'd do that when the only differences in my case would be:


you have to wait until 60 to access the LISA (i wont be retiring beforehand anyway, unfortunately)


you can invest in the same funds .... but the LISA gives you 25% bonus on your contribs.


(The £4k limit becomes irrelevant for me since i wont be putting more than that in)

Alexland

I put enough into my workplace pension to avoid paying any higher rate tax. As such, ignoring any adjustments to my tax code for expenses, I am paying 20% income tax above £11,850 and my income becomes just under £46,350. For the sake of a LISA discussion we are both basic rate taxpayers.

The easy way to think about a pension is as a tax deferred account. You might save tax now but you may have to pay some later.

If I put £4k into my SIPP it would be boosted by 25% (20% tax relief, same as LISA bonus) to £5k but then there is the possibility that under the current rules a proportion of the 75% of the pension will be taxed if my annual income in retirement (including state pension) is above £11,850+inflation. As such I may get back less than £5k+growth. However with a LISA the full £5k+growth is available to withdraw from age 60.

Now if you have an employer who offers salary sacrifice National Insurance saving then that can be a further 12% saving on workplace pension contributions in which case it roughly matches a LISA for efficiency.

Alex

masonic

JustAnotherSaver wrote: »

Just curious why you'd do that when the only differences in my case would be:

you have to wait until 60 to access the LISA (i wont be retiring beforehand anyway, unfortunately)

you can invest in the same funds .... but the LISA gives you 25% bonus on your contribs.

(The £4k limit becomes irrelevant for me since i wont be putting more than that in)

If you wait until 60 to access, then it may as well be put into a pension where the net tax relief is higher than the LISA (due to the tax free lump sum). The pension is the best of all three accounts for this purpose.

If you don't wait until you are 60, then there is a net penalty to withdrawing - you lose all of the bonus plus a bit more. In that situation the S&S ISA is the best of all three accounts. Or the pension if you are lucky enough to have access before 60.

The reason I'd have both a S&S ISA and a pension is that I don't know if I'll be able to wait until 60 before giving up work or part-retiring (in fact I know I won't!)

Alexland

masonic wrote: »

If you wait until 60 to access, then it may as well be put into a pension where the net tax relief is higher than the LISA (due to the tax free lump sum). The pension is the best of all three accounts for this purpose.

But the LISA is the same 25% bonus / 20% tax relief on the contribution and no tax on withdrawal - essentially a 100% TFLS??

Alex

masonic

Alexland wrote: »

But the LISA is the same 25% bonus / 20% tax relief on the contribution and no tax on withdrawal - essentially a 100% TFLS??

If no salary sacrificing is possible, then yes that's true. I'm making an unconscious assumption relating to my own circumstances :doh: And of course contradicting myself at the end of post #15 where I mentioned there is a slice of income for which the LISA does come in useful providing you have a big enough pension - that's regardless of salary sacrifice.