What do you think the chances are that the Lifetime ISA (LISA) access age will increase too?

megw

I am concerned that after private pension age increase announcement last week, that the LISA will follow suit.

I am probably worrying more than most, as have a 5 year shorter than average life expectancy due to a health condition I was born with. I have been using LISA as a small bonus pension pot on the side, but am starting to regret my decision. I already am starting to feel that 60 is pushing it to access any retirement savings. I have just hit my 30s and my health has deteriorated these past 2-3 years, and still have 30 to go.

I am now considering taking the 20% withdrawal fee hit and withdrawing early, I have until April to decide (when it becomes 25%), but I want to know whether I am over reacting, if there is a limit to the amount it can legally increase by etc?

e.g. What is to stop the government from increasing it closer to 70 over the next 30 years? But also that I have no immediate need or plans for the money so it will just be wasting away in a low interest savings account for the next years as I feel any property/funds/shares investments right now are too unstable due to COVID. These are all thoughts going through my mind right now.

Anyone else using LISA for retirement, what are your thoughts?

eskbanker

The move in private pension age from 55 to 57 was originally announced (albeit provisionally) back in 2014, three years before the introduction of the LISA, so the setting of the LISA access age should have taken that particular change in mind, and therefore it wouldn't be unreasonable to expect that LISAs should still be accessible to 60 year olds in 2028.

However, 30 years is a very long time away and that period will probably encompass further pension age changes and numerous flavours of government, so nobody can say with any certainty what will happen - despite what WASPI claim, changes to pension ages are trailed well in advance to allow those affected to adjust plans accordingly but it's difficult to envisage how any transitional arrangements would work if it was considered necessary to change the LISA access age.

If you "have been using LISA as a small bonus pension pot on the side", does this suggest that this is better for you than using an actual pension?  Will you have access to pension money at 57 (assuming no further change)?  If the LISA money is a 'small bonus', would another year or two really be a big issue, bearing in mind that it's only early withdrawals that are penalised and you presumably wouldn't be looking to empty the entire LISA pot at the earliest opportunity?

Regarding "I have no immediate need or plans for the money so it will just be wasting away in a low interest savings account for the next years as I feel any property/funds/shares investments right now are too unstable due to COVID", it certainly doesn't make any sense to keep long term money in cash savings, as it's pretty much guaranteed to lose real-terms value to inflation.  Investing is highly likely to be a better bet (are you already using a S&S LISA rather than a cash one btw?), despite your perception of current volatility, which is nothing unusual when looking at the big picture - there will be plenty more ups and downs in any thirty year period, but that shouldn't be seen as a reason to stick to cash....

dunstonh

I am concerned that after private pension age increase announcement last week, that the LISA will follow suit.

The pension age increase was not announced last week. It was announced back in 2014 by George Osborne with the intention of making it 10 years less than state pension age.

LISA already has a later minimum age it can be taken without penalty.

I am now considering taking the 20% withdrawal fee hit and withdrawing early, I have until April to decide (when it becomes 25%), but I want to know whether I am over reacting, if there is a limit to the amount it can legally increase by etc?

I am now considering taking the 20% withdrawal fee hit and withdrawing early, I have until April to decide (when it becomes 25%), but I want to know whether I am over reacting, if there is a limit to the amount it can legally increase by etc?

What would that achieve?   You are guaranteeing a cost in fear of a hypothetical unlikely change.

e.g. What is to stop the government from increasing it closer to 70 over the next 30 years? 

Why would they want to do that?      

The pension increase was to make it 10 years less than state pension.  Moving it to 70 would put it 2 years later than state pension.  There is no logic in it being increased.

But also that I have no immediate need or plans for the money so it will just be wasting away in a low interest savings account for the next years as I feel any property/funds/shares investments right now are too unstable due to COVID. 

Why do you think they are unstable?  Its not been a bad year so far.  

These are all thoughts going through my mind right now.

You are letting thoughts about things that are not really likely affect your planning.

Anyone else using LISA for retirement, what are your thoughts?

I doubt anyone is using the LISA is being used exclusively as that would not be the best thing.       However, in the very unlikely event that happens, you just use your other plans first.  Such as your personal pension.

megw

eskbanker said:

If you "have been using LISA as a small bonus pension pot on the side", does this suggest that this is better for you than using an actual pension?  Will you have access to pension money at 57 (assuming no further change)? 

Possibly, the way things are going for me, which is why I am very unsure of what to do here. Right now am on low income. Due to health issues flaring up, I have worked on/off these past 3 years. e.g. last year I worked for 2 months in the entire year. I am waiting on NHS referrals, so I don't know what the prognosis will be, but if it continues like this, then LISA will be better, as will just be a matter of saving whatever I can, whenever I have the money to spare. I will have access to small pension savings at 57, but I have great concern that this age will also increase further. 

@dunstonh asked what the logic would be in increasing pension age, but I see it as the same reason it was increased for my parents generation: People are living longer, there is an ageing population, less people having children, so less young people, so we need people to work longer into their lives.

dunstonh

@dunstonh asked what the logic would be in increasing pension age, but I see it as the same reason it was increased for my parents generation: People are living longer, there is an ageing population, less people having children, so less young people, so we need people to work longer into their lives.

You are not talking about pension though. You are talking about LISA.    Pension age is increasing to begin 10 years less than state pension age.  That is slated to go to 68 between 2046-2048.  So, By 2048, pensions will have a minimum age of 58.   LISA is already 60.    2 years later than pensions.   So, even if the Govt increased state pension to 69 and then to 70, it will still be less or the same as LISA.

megw

dunstonh said:

@dunstonh asked what the logic would be in increasing pension age, but I see it as the same reason it was increased for my parents generation: People are living longer, there is an ageing population, less people having children, so less young people, so we need people to work longer into their lives.

You are not talking about pension though. You are talking about LISA.    Pension age is increasing to begin 10 years less than state pension age.  That is slated to go to 68 between 2046-2048.  So, By 2048, pensions will have a minimum age of 58.   LISA is already 60.    2 years later than pensions.   So, even if the Govt increased state pension to 69 and then to 70, it will still be less or the same as LISA.

Right, but my concern is that LISA will follow the same trend as pension, and it will also increase, as it was previously always 5 years higher than pension age. So what's to stop it from increasing too, to retain that 5 year gap? There seems to be no set rules with LISA, so really there's no guarantee it will always be x years lower than state pension, we just have to trust that the government won't change it? 

bowlhead99

megw said:

dunstonh said:

@dunstonh asked what the logic would be in increasing pension age, but I see it as the same reason it was increased for my parents generation: People are living longer, there is an ageing population, less people having children, so less young people, so we need people to work longer into their lives.

You are not talking about pension though. You are talking about LISA.    Pension age is increasing to begin 10 years less than state pension age.  That is slated to go to 68 between 2046-2048.  So, By 2048, pensions will have a minimum age of 58.   LISA is already 60.    2 years later than pensions.   So, even if the Govt increased state pension to 69 and then to 70, it will still be less or the same as LISA.

Right, but my concern is that LISA will follow the same trend as pension, and it will also increase, as it was previously always 5 years higher than pension age. So what's to stop it from increasing too, to retain that 5 year gap? There seems to be no set rules with LISA, so really there's no guarantee it will always be x years lower than state pension, we just have to trust that the government won't change it? 

When you say 'it was previously always 5 years higher than pension age, you make it sound like it has been going for a long time, always at a level 5 higher than private pension age.

However, it's only existed three years and  - as Dunstonh said - at the time it was being legislated for, the civil servants who invented it had the full knowledge that the previous coalition government had said they intended to peg private pension age to ten years behind state pension age, with state pension age known to be already on a path to go up to 67. 

So, private pension age would inevitably be increasing to 57 (and probably more later) and so their action to set LISA to 60 (in full knowledge that private pension age would be 57 as soon as someone got round to legislating it) gave a bit of a cushion for private pension access age to rise to 57 as expected, and later perhaps 58, 59, 60, without the LISA age dropping below private pension age. It does not mean there was any intention that LISA should always be five years later than private pension age.

The idea of having private pension and LISA access age be set late in people's working lives is simply because they are creating a tax incentive for people to contribute to their own private retirement pot, and they do not want people stuffing a load of money into a pension or LISA product age 39, allegedly for retirement, getting a big bonus, and then drawing it back at 41 and keeping the bonus. Anyone who can retire at age 41 does not need the government to help them with an incentive, bonus or tax relief at age 39.  So they set the draw-out rule to be a later age instead. Private pension age is synchronised with state pension age (you won't be able to get it earlier than your late 50s) and LISA is a nice round number at 60 which is currently a bit later than private pension age but may end up being about the same, if pension age increases a bit. 

I think there is no point you giving up on your LISA on some unwarranted fear that you'll never be able to access it. A woman who has already got to age 31 would on average live to 88. If your life expectancy is 5 years less than that, it's still 80+.   

If you give it another ten or twenty years from now and think that you definitely don't want to keep invested in the product, the 25% penalty is still only a few percent more of a penalty than if you withdraw it this year at the 'special' rate of 20% penalty.  So you can let it grow and if you get to age 50 and really want it at that point, just pay the penalty then instead, but meanwhile keep using the product because it's a shame to throw the bonus in the bin if you don't really need to.

And if you did withdraw it, how else would you invest it for your retirement? Assuming that by your late 50s you already have built up pensions which you'll be drawing and paying tax on, a further chunk of pension is going to attract further tax, making the tax relief for making further pension contributions less useful than the bonus on LISA contributions which are not taxable when drawn age 60+.  So the LISA is a decent product.

dunstonh

megw said:

dunstonh said:

@dunstonh asked what the logic would be in increasing pension age, but I see it as the same reason it was increased for my parents generation: People are living longer, there is an ageing population, less people having children, so less young people, so we need people to work longer into their lives.

You are not talking about pension though. You are talking about LISA.    Pension age is increasing to begin 10 years less than state pension age.  That is slated to go to 68 between 2046-2048.  So, By 2048, pensions will have a minimum age of 58.   LISA is already 60.    2 years later than pensions.   So, even if the Govt increased state pension to 69 and then to 70, it will still be less or the same as LISA.

Right, but my concern is that LISA will follow the same trend as pension, and it will also increase, as it was previously always 5 years higher than pension age. So what's to stop it from increasing too, to retain that 5 year gap? There seems to be no set rules with LISA, so really there's no guarantee it will always be x years lower than state pension, we just have to trust that the government won't change it? 

Nothing is guaranteed in life and tax wrappers are no different.   Historically, when a tax wrapper was abolished, it either retained its original terms but no new money was allowed to be added or it was converted into another tax wrapper that was more flexible.

There is a strong possibility that that Lifetime ISA will be abolished.  Not much goes into it (in the scheme of things). Most of it it is for house purchases.   And it has a strong overlap with pensions.   Most providers do not offer it.     So, many think it will not last.      However, it may do.   There is always uncertainty in life.

In reality, if you are doing your financial planning correctly, you will not be relying 100% on a LISA.   For retirement earlier than state pension, then personal pension is likely to be more beneficial than LISA.    For retirement earlier than minimum pension age, then S&S ISA is more beneficial.  For retirement after state pension age, then LISA will come into play then.   So, you could end up with the following scenario:

Retiring before age 57/58

draw income fully from S&S ISA until hitting 57/58 when you switch the income from pension to utilise your personal allowance (which gives you about £16k income).  Any more than that can come from the S&S ISA.

Age 60, you have the LISA available but you wouldnt draw on it unless you want to draw more that would normally fall in the basic rate band.

Age 67/68 (state pension age) reduce the pension income as the state pension eats much of the personal allowance leaving less for other pensions.  Then draw on the LISA and S&S ISA.

So, if you are doing your planning well, you probably wont be using the LISA as early as age 60.

masonic

megw said:

dunstonh said:

@dunstonh asked what the logic would be in increasing pension age, but I see it as the same reason it was increased for my parents generation: People are living longer, there is an ageing population, less people having children, so less young people, so we need people to work longer into their lives.

You are not talking about pension though. You are talking about LISA.    Pension age is increasing to begin 10 years less than state pension age.  That is slated to go to 68 between 2046-2048.  So, By 2048, pensions will have a minimum age of 58.   LISA is already 60.    2 years later than pensions.   So, even if the Govt increased state pension to 69 and then to 70, it will still be less or the same as LISA.

Right, but my concern is that LISA will follow the same trend as pension, and it will also increase, as it was previously always 5 years higher than pension age. So what's to stop it from increasing too, to retain that 5 year gap? There seems to be no set rules with LISA, so really there's no guarantee it will always be x years lower than state pension, we just have to trust that the government won't change it? 

State pension age less 10 years has been the convention for accessing private retirement savings. The LISA already has that built in for under-40 year olds, whereas personal pensions are in the process of being aligned. If the state pension age rises above 70, as has been proposed, then perhaps LISAs will creep up too.