Pension vs Lisa = Winner?

kinger101

dqnet said:

@kinger101
Correct me if I am wrong but it's not 25% uplift as you were taxed at 20% before you are getting your 25% relief.  When you put that £1.00 in you had previously earned £1.25 so effectively you are returning it to its original value. With a pension, the £1.25 you earned turned into £1.00 and went back in to £1.25 however when you come to withdraw it providing it is under the 20% PA allowance you got the 25% back just as with a LISA no - its just a question of money now or risk later?  (Salary Sacrifice and Auto Enrolment not accounted for as per original question).

Incomes from salary or pension schemes are always subject to income tax.  With pensions, you're just deferring the tax until it is drawn.  While you can get some of your pension under the personal allowance, state pension (which is currently around £9,100 a year) is also taxable income.  So it doesn't take a massive pension pot to put you back into tax.  

Always get the maximum employer match first, but after that, go for the most tax efficient option.

*NB one possible disadvantage to a LISA is that it's view as assets for purposes of accessing certain state benefits, whereas pension isn't.  But if you've stable employment or other "savings" anyway, probably not relevant.

Alistair31

My fear at the moment is contributing my £4K to LISA just in case I lose my job, although WFH at the moment, things really are all to play for. 

Alexland

Alistair31 said:

My fear at the moment is contributing my £4K to LISA just in case I lose my job, although WFH at the moment, things really are all to play for. 

Often the best time to invest is when you least want to for many reasons. Still if you have a suitable emergency cash fund (and a 0% purchases credit card with a long period remaining incase the fund proves insufficient) then there should be no reason to stop your normal pattern of regular investments.

For me one of the advantages of a LISA is that it doesn't factor into the pension lifetime allowance calculation as I have been salary sacrificing most of the annual allowance in recent years and expect to do the same this tax year unless my employer uses the deteriorating economic backdrop as an excuse to cancel the bonus they accrued for me.

Alistair31

Alexland said:

Alistair31 said:

My fear at the moment is contributing my £4K to LISA just in case I lose my job, although WFH at the moment, things really are all to play for. 

Often the best time to invest is when you least want to for many reasons. Still if you have a suitable emergency cash fund (and a 0% purchases credit card with a long period remaining incase the fund proves insufficient) then there should be no reason to stop your normal pattern of regular investments.

For me one of the advantages of a LISA is that it doesn't factor into the pension lifetime allowance calculation as I have been salary sacrificing most of the annual allowance in recent years and expect to do the same this tax year unless my employer uses the deteriorating economic backdrop as an excuse to cancel the bonus they accrued for me.

I do have an emergency fund (£10k in PB’s) which would last me a while. I have circa £35k in ISA and £15K in LISA. I suppose the government would want me to wipe all that out before considering me for any unemployment allowances should the worst happen. I work in construction/building services industry so  I’m quietly optimistic that things will start to open up relatively soon as it has just done in Spain. 

I normally just put the LISA funds in first week of April, guess it’s just fear this time. 

Thrugelmir

Alistair31 said:

My fear at the moment is contributing my £4K to LISA just in case I lose my job, although WFH at the moment, things really are all to play for. 

Do you pay a mortgage currently? 

Alistair31

Thrugelmir said:

Alistair31 said:

My fear at the moment is contributing my £4K to LISA just in case I lose my job, although WFH at the moment, things really are all to play for. 

Do you pay a mortgage currently? 

I do and it’s fixed on quite a low rate. In any case, and selfishly, I don’t want to contribute lump sums to overpaying the mortgage when my partner doesn’t. 

Alexland

Alistair31 said:
I normally just put the LISA funds in first week of April, guess it’s just fear this time. 

Nice - it's going to take us 4 months to fill our LISAs at 2x£1k pm as my wife has salary sacrificed down to her personal allowance so we have less to put in ISAs this year.