New to Investing - Is now the time?

Cptralls

Hi All, 
I've always been curious about investing and the LISA pension option looked interesting. I've recently stockpiled in Premium Bonds and I have some regular savers on the go but the returns are quite low. I have a work based pension via which I contribute 8% and my company contributes 13%, it stands at £40k and I'm 36.
What are my options going into LISA's/Investing? Happy to plug £2k per year in and leave it in long term e.g. 5 years plus. 

grumiofoundation

LISA - can pay £4000 per year, get 25% bonus from the government but cannot access till 60 without paying penalty.

LISA/Pension contributions are more tax efficient that Stocks and shares but cannot be accessed (in case of pension) or pay a penalty (LISA). If you might want the money before retirement Stocks and Shares ISA (rather than LISA) may be a better option. 

bowlhead99

S&S LISAs will offer broadly similar investment options to what could be bought inside a private self-invested pension.

They will offer a range of investment funds just like a workplace pension does, and you can select from what's on offer. Like a workplace pension, the funds are collective investment schemes where your money is pooled with other people's and invested in a portfolio of company shares or other investments. You simply buy shares or units in the fund and the fund manager goes out and buys the underlying portfolio of investments and looks after it. 

Some LISAs will offer the choice of buying shares in individual companies - though if you are only putting a couple of thousand a year in, you're never going to be able to build a balanced portfolio out of shares in individual companies because you would have so little in each company, and would be best to just buy a fund where your money is managed collectively. For £2000 a year no need to buy more than one fund. The more suitable funds to use would be those which generally hold stocks and bonds from all over the world rather than just being focused on one region or industry.

However, you say 'leave it in long term e.g. 5 years plus'. If using a Lifetime ISA to get the bonus, you should be planning on leaving it longer than that.

A lifetime ISA comes with a bonus (similar to getting basic rate tax relief when you contribute to a pension) but money can only be taken out of the LISA penalty free if you are withdrawing it for a qualifying purpose (e.g. first time home purchase) or once you reach the age of 60.  If you invested your money for just 5-10 years and then took it out, you would need to pay a penalty which would equate to more (as a percentage of the withdrawal) than the bonus they had given you.  So unless you're buying a property in 5+ years or you're willing to have the £2000 'locked up' invested until you're 60, you shouldn't use a LISA. A 'normal' S&S ISA (i.e. not a Lifetime ISA) doesn't have a withdrawal penalty, but it doesn't come with a bonus either, so if the purpose is long term retirement then use a LISA or pension and if it is medium term <20 years then use a normal S&S ISA. 

Malkytheheed

The best time to start investing was 20 years ago. 
The next best time is today. 

dd95

yes but be warned, its addictive!

MaxiRobriguez

Cptralls said:

Hi All, 
I've always been curious about investing and the LISA pension option looked interesting. I've recently stockpiled in Premium Bonds and I have some regular savers on the go but the returns are quite low. I have a work based pension via which I contribute 8% and my company contributes 13%, it stands at £40k and I'm 36.
What are my options going into LISA's/Investing? Happy to plug £2k per year in and leave it in long term e.g. 5 years plus. 

How much do you earn and is your work based pension salary sacrifice or not?

If you're happy to leave it long term the answer is likely to be that increasing your contribution from 8% is the first step. Knowing earnings and your pension schemes means we can be certain. 

thenewcomer

sorry noob here. what does pension salary sacrifice mean?

83705628

5 years isn't long term 5 years is short term

steampowered

Pensions and Lifetime ISAs are just wrappers. You can invest through a Lifetime ISA, just as you can invest into a pension. 

A Lifetime ISA won't be suitable if you might want to access the money before retirement, due to the penalty on withdrawals. If this is the case, you should be investing into a stocks & shares ISA instead.

Have a read on the MSE article on the subject of pensions vs LISAs, which suggests that a pension is best for retirement savings in most cases: https://www.moneysavingexpert.com/savings/lifetime-isas/#pension-2

bowlhead99

thenewcomer said:

sorry noob here. what does pension salary sacrifice mean?

Salary sacrifice or salary exchange is where the way you contribute to your workplace pension is by formally agreeing to 'sacrifice' (give up) a portion of your headline salary, in exchange for the employer making a larger pension contribution from their own cash resources. They save the cost of paying you part of your salary and also save some employer's national insurance contributions, and some employers are willing to give you a bit extra into the pension pot to thank you for saving them the employer's NI. Meanwhile you have a lower gross salary, so you pay less income tax and less national insurance.  Usually your other benefits and pay rises etc are still based on your theoretical original headline salary, but the 'salary sacrifice' way of paying into a pension is very efficient because of saved employee's NI contributions (12% for basic rate taxpayers, 2% for higher).

Not all employers offer salary sacrifice, and some might offer it only as a once-per year choice rather than for ongoing ad-hoc contributions from time to time.

Cptralls

I don't know if the LISA's are for me then, in terms of getting going with S&S, how should I decide on my platform and fund Manager?