LISA - is it worth it?

jamels2

As somebody who has pretty much decided to fund retirement by:
1. Owning one property outright
2. Investing in index trackers via s&s ISAs each year
It came to my attention due to my age that a Lisa may be useful (I am 38).
As I already have a mortgage I would use to for the retirement option.
Any thoughts on whether it's worth opening and doesn't conflict at all with s&s or cash ISAs.?

SonOf

Any thoughts on whether it's worth opening and doesn't conflict at all with s&s or cash ISAs.?

If its for retirement then LISA will trump ISA. It will use £4000 of your ISA allowance as the only conflict.

Pension trumps ISA as well. Although with LISA vs pension it can depend more on your tax position.

Cisco001

I increased my pension contribution instead.

kinger101

Could you clarify whether (a) you pay higher rate tax and (b) whether you are able to make contributions to a pension via a salary sacrifice arrangement.

jamels2

I pay 20% tax. I currently do not pay Into a pension despite my employer offering one. I think they match contributions but I prefer the s&s isa idea.

bowlhead99

jamels2 wrote: »

I pay 20% tax. I currently do not pay Into a pension despite my employer offering one. I think they match contributions but I prefer the s&s isa idea.

You would prefer to invest on your own, than with the help of an employer who would be willing to literally give you FREE MONEY that he wouldn't give you if you decided to not be part of the pension scheme?

When your employer recruited you and set your pay, and the pay of all of your colleagues, he was picking your annual salary figure on the basis that he would need to be able to afford the pension contributions on top, to go some way towards helping fund your retirement on top of the years spent working for him.

If you say, "cheers mate, thanks anyway, but I prefer the s&s ISA idea because I can get my hands on the money sooner, even though it'll only be half the amount", your employer will think, "wow, that's awesome - the money we had budgeted to pay towards this person's pension can simply be distributed to other employees or kept in the bank to be paid to the business's owners instead"

"The business's owners will love that extra cash which they can keep to themselves, and hopefully give me a pay rise to thank me for not talking this idiot employee out of his dumb idea to IGNORE THE FREE MONEY I'M WILLING TO PUT INTO HIS PENSION SCHEME."

A personal take on it: as a person responsible for hiring decisions, you would think I might like the people who don't want the free matching pension money - because they work out cheaper for me to employ. But actually, I work in financial services and accounting, and within reason, want to recruit the 'best and brightest' that my budget allows, and want to ensure that my top employees are well rewarded in addition to making sure that they're pretty savvy.

However, while being generally a very nice guy and extremely sensitive to employee's personal circumstances if they are willing to talk to me or a colleague about them -not everyone can afford to max out their pensions- I would generally discriminate against them for promotion prospects if they reckoned it was smarter to turn down the free money every year without a very cohesive explanation for why they are disregarding logic and preferring a lower amount of free money.

Working in business and accounting, how can I recommend this employee to a client as an industry expert, worthy of the client's trust and respect, when he demonstrates such lack of comprehension in financial matters?

As an aside, AFTER you have got as much free money as possible from the employer, then yes the S&S LISA is more lucrative than a normal S&S ISA (other than the penalty to cash it in early), so contributing to one of those is fine too. They are a valid financial planning tool for a 38-year old, given they will give you a better return than a normal S&S ISA if held to age 60+

kinger101

jamels2 wrote: »

I pay 20% tax. I currently do not pay Into a pension despite my employer offering one. I think they match contributions but I prefer the s&s isa idea.

OK - the employer match means you're mad not to be using their scheme. Let's assume they do 1:2 match, though I suspect it will be more generous

ISA

Other than tax free growth, no tax benefits whatsoever. No free money.

LISA

£100 of net pay into a LISA becomes £125

£125/£100 = 1.25, i.e 25% free money


Without salary sacrifice.

£100 of gross pay into your pension gets a 50% bonus from your employer. So that's £150. It only cost you £80 of net pay. But will be taxed at an effective rate of 15% when you withdraw the pension. So you'll see £127.50

£127.50/£80 = 1.594, i.e 59.4% free money

With salary sacrifice

As above, but the £100 of gross pay now costs just £68, as you'll save NI too.

£127.50/£68 = 1.875, i.e 87.5% free money.

Which number is larger?

0, 25, 59.4 or 87.5 ?

poppy10_2

As the two posters have stated above, you'd have to be crazy to turn down the employer matching in order to save for a pension in an ISA. You are throwing away huge sums of money.

cloud_dog

jamels2 wrote: »

I pay 20% tax. I currently do not pay Into a pension despite my employer offering one. I think they match contributions but I prefer the s&s isa idea.

It never ceases to amaze me.

I get that people like the flexibility afforded by an ISA over the age restrictions for a pension but all you have to do is plan around it. What age does the OP expect/hope to retire at?

girllikeme1

I'd open a S&S LISA and a Cash Lisa (but can only contribute to 1 per tax year) while you can (before aged 40) anyway, before you lose the chance. Even if £1 sits in there, you have it open and can add money if you get it during your 40s.

As others have said you're losing out if you don't take your employer's pension contributions though!

SonOf

jamels2 wrote: »

I pay 20% tax. I currently do not pay Into a pension despite my employer offering one. I think they match contributions but I prefer the s&s isa idea.

Do you also burn £10 notes willy nilly as well?

Complete and utter madness to turn down free money from the employer. I suggest you cancel your account on this site and go find a money stupidity site. Strong language but you are making that much of a mistake.