LISA and benefits

Buckhill

LISA can only be accessed to help with 1st time buyers or for 60+ income. I contribute for the 2nd reason.
So how can this be counted as savings to be taken into account if in the interim you lose work and have to go on benefits.
If you do have to cash it in I will lose my money put aside for older age and pay a penalty . So a double whammy.
I do not have a private pension (low earning self employed) and this is all i have to rely on in later years.
Are private pension contributions considered as savings that must be cashed in if you lose your job?
If not, then LISA contributors are being treated unfairly. 

eskbanker

Private pensions can't be accessed until you're 55, regardless of job loss, etc, and so are ignored when means-testing for benefits.

As you say, LISA money can be accessed and so is categorised alongside all other (non-pension) savings, such as fixed-term ISAs (which would also entail early-withdrawal penalties).

You could perhaps argue that it's unfair but there are many aspects of pensions, benefits and taxation that could be argued to be unfair and this is just the way it is, so best understand the reality before making any significant decisions....

dunstonh

So how can this be counted as savings to be taken into account if in the interim you lose work and have to go on benefits.

LISAs are accessible before 60.  Pensions are not at all accessible before 55.

If you do have to cash it in I will lose my money put aside for older age and pay a penalty . So a double whammy.

And that is one of the consequences and compromises with that tax wrapper.  

I do not have a private pension (low earning self employed) and this is all i have to rely on in later years.

That doesn't stop you having a pension (or any other tax wrapper).  Its a choice that you make.

Are private pension contributions considered as savings that must be cashed in if you lose your job?

No.  As pensions are not accessible, unlike LISAs, they are not included in means tests until you get to retirement.

If not, then LISA contributors are being treated unfairly. 

Its not unfair.  Pensions are not accessible at all.  LISAs are accessible.

LISA was never designed to be a retirement planning product. It's purpose was to save for house buying but it needed a fallback in case the house purchase never happened.  So, they bolted on the retirement criteria.    By doing so, it created a possible use for retirement planning by the backdoor.  

Alistair31

Use a SIPP instead then?

Buckhill

Thanks for the advise.
I don't pay tax as income too low so SIPP and tax relief no great benefit to me.
Still seems unfair. Can pay £40,00 pa into a SIpp ( lucky person with that money to put aside) and max. only £4000 into a LISA so clearly designed for those who are worse off ie those saving for older age, who have less to put aside .

Not made clear that the 60+ plus provision was put in as an add on to LISA primary purpose to assist  1st time buyers . If correct that is even more unfair . No way could I buy, so was sold this as a good savings option for me to access at 60. Was made clear and sold as something you should not cash in early.

eskbanker

Buckhill said:

Thanks for the advise.
I don't pay tax as income too low so SIPP and tax relief no great benefit to me.
Still seems unfair. Can pay £40,00 pa into a SIpp ( lucky person with that money to put aside) and max. only £4000 into a LISA so clearly designed for those who are worse off ie those saving for older age, who have less to put aside .

That looks like a typo but your contributions to pensions are constrained by your earned income anyway, so if you're earning below £12,570 then you couldn't pay any more than that into pensions.

Buckhill said:

Not made clear that the 60+ plus provision was put in as an add on to LISA primary purpose to assist  1st time buyers . If correct that is even more unfair .

Not correct, it was set up from scratch as a dual product aimed at both first time buyers and those saving for retirement.

Edit: if you're referring to dunstonh's earlier comment then that may have applied to the early stages of conceptual design, but it was launched in 2017 as a dual-purpose product: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/508176/Lifetime_ISA_final.pdf

Buckhill said:

No way could I buy, so was sold this as a good savings option for me to access at 60. Was made clear and sold as something you should not cash in early.

It is a good savings option for 60+ but withdrawing early is subject to penalties, so whoever was selling it to you was largely correct.  That doesn't mean that it's better than a pension, but evaluation of LISA versus pension is complex and involves numerous factors, so you can't rely on soundbites when making important financial decisions.

https://www.moneysavingexpert.com/savings/lifetime-isas/#pension-2 highlights that "Affects pre-pension-age benefits entitlement?" is a 'yes' for LISA and 'no' for pensions, for example....

dunstonh

Edit: if you're referring to dunstonh's earlier comment then that may have applied to the early stages of conceptual design, but to the best of my recollection it was launched in 2017 as a dual-purpose product.

Correct. It was launched as it is today.   My reference was the to how it came to be.

Not made clear that the 60+ plus provision was put in as an add on to LISA primary purpose to assist  1st time buyers . If correct that is even more unfair . No way could I buy, so was sold this as a good savings option for me to access at 60. Was made clear and sold as something you should not cash in early.

1 - most LISAs are not sold but bought.

2 - it is a good option.  But you have a choice.  Pension or LISA. If you don't like the fact its included in means testing then use a pension instead.

MX5huggy

If you anticipate claiming means tested benefits or going bankrupt, the a pension is a better choice.

The LISA is a product aimed at people who can’t or won’t get their heads round a pension. There’s all sorts of complexity with pension every time a new type comes along it adds another. So wisely LISA is not called a ISA Pension or Pension ISA. 

masonic

Buckhill said:

So how can this be counted as savings to be taken into account if in the interim you lose work and have to go on benefits.

Buckhill said:

Can pay £40,00 pa into a SIpp ( lucky person with that money to put aside)

Buckhill said:

I don't pay tax as income too low

If you mean that you can pay £40k pa into a SIPP from your savings, but aren't in fact doing so because you can't get tax relief on enough of it, then I don't really see how you would be eligible for means-tested benefits even if the LISA wasn't accessible.

Perhaps you are putting too much focus on the rather unlikely scenario that you'll lose your income for long enough that you'll spend tens of thousands of pounds held outside your LISA, but then miss out on claiming means tested benefits for a few more months due to money held within it.