Anyone using a lifetime ISA for retirement saving?

onwards&upwards

I have just opened a LISA with skipton but have only put £100 in it because I can’t decide if it’s a good idea or not, read Martin’s guide and still not sure!

I’m 35 and already own my home, so opened one while they’re still available to me just in case!

From what I can work out:

Pros

25% bonus from the government
Tax free when you take it back out
Can access it at 60 no penalties
Can get money out sooner in an absolute emergency just lose the bonus

Cons

Lose the bonus if need to take it out early
Money could go into pension and get employer contributions but would then be less accessible and taxable.

Really interested in people’s thoughts. I pay 5% of my 32k salary to my employee pension and am getting a pay rise this month so will probably up that to 7 or 8% by the end of this year. I am quite new to saving having had some debt issues until recently so only have about 5k so obviously can’t lock that away now i’m thinking ahead over the next 5-10 years really. Nearly all of that 5k is currently earning 5% at the moment but that won’t last!

Am I missing any cons?

lonewolf123

onwards&upwards wrote: »

I have just opened a LISA with skipton but have only put £100 in it because I can’t decide if it’s a good idea or not, read Martin’s guide and still not sure!

I’m 35 and already own my home, so opened one while they’re still available to me just in case!

From what I can work out:

Pros

25% bonus from the government
Tax free when you take it back out
Can access it at 60 no penalties
Can get money out sooner in an absolute emergency just lose the bonus

Cons

Lose the bonus if need to take it out early
Money could go into pension and get employer contributions but would then be less accessible and taxable.

Really interested in people’s thoughts. I pay 5% of my 32k salary to my employee pension and am getting a pay rise this month so will probably up that to 7 or 8% by the end of this year. I am quite new to saving having had some debt issues until recently so only have about 5k so obviously can’t lock that away now i’m thinking ahead over the next 5-10 years really. Nearly all of that 5k is currently earning 5% at the moment but that won’t last!

Am I missing any cons?

I've opened a LISA too.

Agree with all your pro points and to add another point onto the list.

1. LISA is good if you know you're going to hit the lifetime limit on pensions.

With your con on better with going with employer pension because you get employer contribution - yes that is absolutely right its essentially a payrise, be stupid to not take it.

However if you think of it in terms of a savings fountain. LISA should be used after you have maxed out your employer contribution limit.

As it has always been advertised. LISA should be used in conjunction with pension, not instead.

onwards&upwards

Thanks, I like your idea of the fountain, hadn’t considered it that way.

Made me realise I don’t actually know what the upper limit is that my employer will contribute, does it vary or is it set in law?

bowlhead99

onwards&upwards wrote: »

Made me realise I don’t actually know what the upper limit is that my employer will contribute, does it vary or is it set in law?

The government sets a minimum that the employer should contribute to an auto-enrolment scheme: 3% of salary or pensionable pay, however that gets defined in the rules. But each employer decides what sort of package of salary, bonus, pension, healthcare, days holiday, other benefits it wants to give its staff.

My employer will put in 5% of my basic salary to the pension and will do that (and no more) whether I personally choose to put in 3%, 4%, 5%, 10% whatever. There is no matching at all, as they feel the 5% free money is generous enough and they would prefer to spend their money making the headline salary better or implementing a flexible benefits scheme. Other employers say they will put in 4% if you put in 4%, but will put in 5% if you put in 5, 6 for 6 and so on up to 10% , or more if you are lucky. Some will match half what you do, so if you put in 6 they will do 3, 10 they will do 5, up to some cap.

With some types of pension, e.g. 'defined benefit' schemes, there is no 'matching' as such because the pension buys a fixed annual benefit in retirement, e.g. 1/60th of your final salary for every year you work, and it's up to the employer to find the money to make up the difference between whatever they ask you to put in and the amount it actually costs them.

But the short answer is that the way to find out how much (if anything) of your contributions they will match, is to read the scheme rules or just ask.

AnotherJoe

OP if you are not putting enough in to get maximum matching employer contributions thats criminal.
The problem i suspect is that you look at %'s it doesnt seem much, lets say 1% or 2% extra. However, look at it that if you put 1% in and employer matches the 1%, that is doubling your money ! Plus, you get 20% on top, and then pay (effectively) 15% tax on the way out. That trumps your LISA hands down.

Kat78MFW

As I understand it, you don't just lose the bonus if you have to withdraw early, you lose 25% of the balance. So you would get back less than you put in if you needed access before age 60. Also, if you ever had to claim means tested benefits, I think they consider LISA as savings but they don't include your pension pot.

onwards&upwards

Next step is going to be to find out what is the most my employer will contribute to my pension and aim to make sure i’m getting that then.

After that is maxed, then look at the LISA.

Thanks, i’m a bit fuzzy on pensions I admit. Always paid in but this is the first time i’ve been in a position to consider paying more than the basic.

jimjames

I'm sure a few people are using a LISA for retirement but personally I think putting savings in cash for retirement is a crazy idea. If you're looking at money for 20 years plus then investment would be the more obvious choice in my view

onwards&upwards

jimjames wrote: »

I'm sure a few people are using a LISA for retirement but personally I think putting savings in cash for retirement is a crazy idea. If you're looking at money for 20 years plus then investment would be the more obvious choice in my view

There are S&S LISAs available which would be the eventual plan if I did end up putting a substantial amount in there.

TheShape

I'm currently using a S&S LISA for retirement saving/investing.

I'm a basic rate tax payer in a DB pension scheme without access to salary sacrifice. I also pay into a personal pension.

My intention is to retire at 60 (I'll do so earlier if possible)by withdrawing up to the personal allowance from the personal pension and using the LISA for income above this until State Pension age when I'll access the DB pension and State Pension.

I'm 40 so everything is subject to change over the next 20 years.

Wildsound

At this moment in the time, the cash LISAs are only suitable for those about to buy their first property. Given they've only been around for 2 years and the maximum age of anyone with a LISA will be about 42 years old, anyone using a LISA for retirement should almost certainly be using a S&S LISA as they will be at least 18 years away from being able to access it penalty free.

Unless you're doing this through a financial adviser, you need to be doing a lot of research into where to invest and what to invest in.