LISA or additional workplace pension contributions?

Mattdp

Can someone help. I'm looking at putting more money into a pension pot. I'm 35, a basic rate tax payer on 36k and I already over pay into a work place pension and my company pay the max they are willing at 3%. So do I just pay more myself into the workplace pension or open a LISA?
All advice I can see says that because it is a salary sacrifice it comes out before tax and NI so equivalent to 33% addition but with the personal allowance at £12000 where no tax is paid I see it at more like a 22% saving. I'm not sure if this is the right way of looking at it?
Whereas the LISA tops you up by 25% and is exempt from any tax when drawing it in retirement so potentially another saving up to 22%ish
So am I just as good opening a LISA?

Dazed_and_C0nfused

You don't get any pension tax relief with salary sacrifice as they are actually employer contributions.

The tax benefit comes from you not having the salary to pay tax or NIC on in the first place.

So say you sacrifice £6,000 into your pension.

Your employer will pay in £6,000 and no tax relief gets added.

But from a starting point of £36k you won't pay 20% tax or 12% NIC on that £6k so your take home pay is only reduced by about £4k.  But you have £6k in your pension fund.

grumiofoundation

As above salary sacrifice saves you not just the tax (as with any pension contribution) but also saves the NI - so get 33% relied (50% uplift) rather than 20% relief (25% uplift). Should not also if you have a student loan salary sacrifice reduces repayments on that

Non sal sac:
£1200 salary -> pay tax and NI -> £800 -> into pension -> £1000 in pension
Sal sac:
£1200 salary -> you agree to reduce salary in return for employer paying into pension -> £1200 in pension. 

First question would be is up to what limits will your company allow you to contribute via salary sacrifice?

With LISA vs pension for a basic rate tax payer with sal sac the 2 are very similar. 
£800 into LISA -> £1000. No tax on withdrawal = £1000
£800 into pension -> £1200. 25% tax-free (£400) plus 75% taxed @ 20% (£640) = £1040.

With LISA vs pension for a Basic rate tax-payer (no sal sac) LISA 'wins'.
£800 into pension -> £1000. 25% tax-free plus 75% taxed @ 20% = £850
£800 into LISA -> £1000 (get 20% tax back). No tax on withdrawal = £1000

Obviously advantage of LISA is all accessible as a lump sum whereas 15 years of extra pension payments won't all be (without paying >20% tax). 
Note - in both cases assuming will be a 20% tax-payer in retirement. If you will be a non-tax payer in retirement then BRT (non sal sac) and LISA are the same and BRT (with sal-sac) > LISA, but if someone can afford £4000 into pension this likely wont be the case anyway).

Comparison but link doesn't include sal-sac
https://www.which.co.uk/money/pensions-and-retirement/personal-pensions/lifetime-isa-vs-pension-affl34p2r2uk

cfw1994

Some great tax information above.
Do note that LISA money can only be accessed to either help buy a first home, or to access from the age or 60.   If you access it before 60 for use other than a first house purchase, you will have penalties that remove the Government's contribution, so avoid that!
Under current rules, you would be able to access pension funds earlier than a LISA, so that would be my choice if you are not using LISA to buy a home....

It is good to think about these things though.  Even 'regular' S&S ISAs are worthwhile having: although you have paid tax on the money you invest, you can access it whenever, so either for emergencies, or giving you access to money in 15-20 years to consider stepping down early from the world of work....I wish my 35-year-old self had considered slipping £20/50/100pcm into one!
They are all 'just' tax wrappers - *what* you invest in is a separate consideration.  Pensions are generally "the best", the others also "good" 

Mattdp

Thanks for the advice guys that's really helpful. The other considerations I have are that my company are hiring a pension manager who takes 1% cut of the money going in and an annual 1% of the total on top of the fund fees for the investment he is placing. Also the return has been low over the last few years at about 3%. So I'm thinking of having a LISA to run in parallel where I can choose the investments.

Albermarle

Mattdp said:

Thanks for the advice guys that's really helpful. The other considerations I have are that my company are hiring a pension manager who takes 1% cut of the money going in and an annual 1% of the total on top of the fund fees for the investment he is placing. Also the return has been low over the last few years at about 3%. So I'm thinking of having a LISA to run in parallel where I can choose the investments.

Can your employer actually impose the pension manager on you ? I would have thought you would have the right to choose?
One issue with Stocks and shares LISA's is that there are very few actual providers . A J Bell gets mentioned the most , so have a look at their website .

cfw1994

Albermarle said:

Mattdp said:

Thanks for the advice guys that's really helpful. The other considerations I have are that my company are hiring a pension manager who takes 1% cut of the money going in and an annual 1% of the total on top of the fund fees for the investment he is placing. Also the return has been low over the last few years at about 3%. So I'm thinking of having a LISA to run in parallel where I can choose the investments.

Can your employer actually impose the pension manager on you ? I would have thought you would have the right to choose?
One issue with Stocks and shares LISA's is that there are very few actual providers . A J Bell gets mentioned the most , so have a look at their website .

That sounds DECIDEDLY like a dodgy deal to me between the Company and the Pension Manager.  
I presume the firm make some matching payments.  I guess the argument could be that the 2% in fees is effectively paid for by the company money, but it still sounds pretty shocking to me.   

Depends on the company size, I guess, whether to challenge it. 
We (UK arm of large global tech firm) had some very odd decisions made by HR a few years back: they were acting as though the things they were doing were "the Law", when I knew very well they were not (I could quote "The Actual Law" back to them!).   This !!!!!! me off, so I challenged them rather publicly: I was happy to talk to local MD about things.   It looked like they were 'local decisions by one HR person with someone they got on with', & they were changed....& eventually the person involved left.
YMMV!

jamesd

It's worth being aware of the means tested and bankruptcy difference between pension and LISA.

LISA counts as capital for benefits and exposed at all times.

Pension pot is ignored for means tested benefits until either taken or pension credit age is reached. Protected from bankruptcy in pre-retirement contexts.

A long period on benefits can deprive ou of LISA money planned for retirement.