Is a LISA right for me?

Mr_Curious

Hi Guys,


I'm trying to decide if a LISA will be right for me.


30 years old
Full time employment
Basic rate tax payer
I pay 10% into my pension matched by my employer. I benefit from salary sacrifice

I am a home owner with a mortgage.
I use a couple of regular saving accounts at 5%



What are your thoughts? Would it be worthwhile in my situation?

Zorillo

I'm in a similar situation, a few years older and I have decided it is right for me. It's essentially extra pension contributions for me but with access in an emergency that actual pension contributions don't allow. If all goes well I'll have a six figure sum to dump into my pension in my early 60s before retiring.

TheLastMongoose

I am in a very similar situation and am using a LISA.


I could make additional pension contributions but one of the big factors for me is that my work pension retirement age is linked to my state retirement age, so could increase to 70 or beyond. I don't want to be forced to work to those sort of ages so the LISA can hopefully bridge the gap. I feel the spending of the funds will be simpler than if they were in a pension type wrapper which seems sensible as I have no idea when or what I will want them for. Also as Zorillo said I can access them before 60 if needed, yes there's a penalty but if you have a life changing event who cares?


Its a long way off but my thinking is that at about 60 I will take retirement number one where I will go part time, possibly in a low stress low wage job and use the LISA to make up the shortfall if needed. I like to think that 60-70 will be my party years. Still having the social aspect of some work, but enough time off to spend those LISA funds on holidays, hobbies etc. whilst I am still hopefully fit enough to enjoy them.

Then at 70 I get to retire properly...if I'm still alive

cloud_dog

Mr_Curious wrote: »

Hi Guys,

I'm trying to decide if a LISA will be right for me.

30 years old
Full time employment
Basic rate tax payer
I pay 10% into my pension matched by my employer. I benefit from salary sacrifice

I am a home owner with a mortgage.
I use a couple of regular saving accounts at 5%

What are your thoughts? Would it be worthwhile in my situation?

I think the fact that your company operates salary sacrifice sways it in favour of additional contributions in to your company pension scheme.

Having said that....What are the additional contributions for?

For SS, in addition to the tax savings (which in essence makes pension contributions and LISA contributions equal) you would save NI contributions of 12%. So contribute £100 and your take home only reduces by £68.

However, flexibility and your potential tax liability when retired (drawing the pension) are going to be critical in your decision.

I am assuming that your pension is a modern money purchase scheme and therefore could be drawn from age 55 onwards (at present, and if you were to choose)

Flexibility
LISA would be more flexible insofar as you could access it whenever you wanted, although if not for a property purchase (which you can't) or at age 60 there will be a penalty applied to the withdrawal.

You need to be aware that if you were to ever need to claim benefits or means tested benefits then the LISA value would be considered. Pension money would not be considered

Tax Liability
LISA money withdrawn after age 60 is tax free (yipee).

Pension money after age 55 (currently, probably will increase to 57 at some point), 25% tax free and the remainder considered for taxation based on your situation. Example, consider retiring at 60 with no other taxable income. 25% tax free then the first £11850 (18/19) or £12500 (19/20) would be free of income tax. If you are likely to have other taxable income taking you above your personal allowance limit then your remaining 75% would be taxed.

There are other considerations but they will be very much based on your financial situation later in life.

cloud_dog

EJS_Superted wrote: »

I am in a very similar situation and am using a LISA.


I could make additional pension contributions but one of the big factors for me is that my work pension retirement age is linked to my state retirement age, so could increase to 70 or beyond.

What is your scheme, is it a defined benefits / final salary scheme?

If it isn't then you should be able to access it or transfer and access if in line with pension freedoms, i.e. at age 55 (currently).

If it is a DB (or similar, i.e. NHS / LGPS etc) then you may have options to draw it earlier but there will be a price to pay for drawing earlier than your NRA, i.e. a reduction in the actual pension.

I am in a DB scheme (lucky me) but it does not allow flexibility in the drawing age, must be at my NRA. To accommodate this and provide me with flexibility I am making additional contributions outside of the main scheme which I will be able to draw earlier than my NRA.

David_Evans

cloud_dog wrote: »

I think
You need to be aware that if you were to ever need to claim benefits or means tested benefits then the LISA value would be considered. Pension money would not be considered
.

This is often overlooked by people. Pensions offer a degree of asset protection.
I would only consider LISA for a first home purchase.

cloud_dog

There are two primary arguments for the benefit of a LISA (outside of the value of savings towards a property purchase):

Allows you to make savings towards retirement in a vehicle that mirrors pension contributions for a BRT payer (ignoring SS) that does not use up any pension LTA.

Allows you, as a HRT payer the opportunity to maximise pension contributions benefiting from the HRT savings.

The thing that concerns me with LISAs is that people may think... Oh great I have £40k in my LISA and that will help a property purchase and also I am well advanced in retirement planning. Often people find it difficult to compartmentalise and it is likely that when they come to buy a property with the LISA they will use up all the money for the property purchase and then may be far behind with retirement planning/saving.

binaryuniverse

cloud_dog wrote: »

Often people find it difficult to compartmentalise and it is likely that when they come to buy a property with the LISA they will use up all the money for the property purchase and then may be far behind with retirement planning/saving.

The OP has stated they already have a mortagage, so they are literally using the LISA for retirement.

cloud_dog

binaryuniverse wrote: »

The OP has stated they already have a mortagage, so they are literally using the LISA for retirement.

Yes, thank you. I had previously acknowledged this in post #4.

This comment was in relation to the general benefits or not of how people may use a LISA and how capable they may be in managing the concept of a single pot of money that may be associated with two goals.

TheLastMongoose

cloud_dog wrote: »

What is your scheme, is it a defined benefits / final salary scheme?

DB CARE. Its the NHS 2015 scheme. There is an option to make extra payments to reduce pension age by up to 3 years in this scheme. I thought about it for a while but its still only 3 years before state pension age which I feel is just not quite enough of a reduction to make a useful difference given the cost involved. I would still want something else in place to be able to slow down a few years earlier. I would like to work for as long as I can, I just don't want to be forced to be in a high pressure, full time job when i'm in my 60's.

I may well start a second pension of some sort in the future, especially if I have more free money to invest, but for now the LISA seems like a simple solution to save a relatively small amount in addition to my DB pension.

cloud_dog

In your situation, if you are a BRT payer then an LISA is probably the better option.