Private sector pension v LGPS v LISA for overpayment

w00519773

I am a lower rate tax payer (just).  I opened a Lifetime ISA pension recently just before my 40th birthday.  I am trying to decide whether to contribute more of my savings to the LISA (before 4th April deadline) or the pension.  The pension benefits from salary sacrifice.  I want to make an overpayment of £3500 (I would then have made £4000 in contributions this year).

To make things more complicated; I will be tuped to a new employer in May and will have a Local government Pension Scheme pension from May (instead of the private sector pension).  Therefore I believe I will have the option of making overpayments into that instead.

kuratowski

What kind of LISA do you have, Cash or Stocks & Shares?  You describe it as a "Lifetime ISA pension" so I assume you mean S&S, but just want to be sure.

For a basic rate taxpayer with salary sacrifice, the tax relief and NI saving are numerically exactly equal to the bonus you receive on a LISA, assuming that you will be a basic rate taxpayer at retirement[*].  However the access age for a pension is currently 55, about to rise to 57, and the access age for a LISA is 60, so that makes the pension more attractive.

There are some true LGPS experts on here, who can explain those schemes a lot better than me, so I'm not going to attempt it.  Just to say it's a very good deal for you, and depending on precisely which of the LGPS schemes you are in, AVCs may be very very tax efficient.

* With a salary sacrifice pension, £100 gross pay is kept in its entirety when paid into the pension scheme; at retirement you can take 25% tax free and then pay 20% tax on the rest which works out as £15 (20% x £75) so the total you'll receive is after tax  is £85.  With a LISA £100 gross pay becomes £68 after tax and NI, and then becomes £85 upon being paid into a LISA due to the the 25% government bonus.

w00519773

kuratowski said:

I assume you mean S&S, but just want to be sure.

Yes it is stocks and shares.  If I chose to make an overpayment on the pension (lgps or private), then I guess the employer has to support it?

Albermarle

w00519773 said:

kuratowski said:

I assume you mean S&S, but just want to be sure.

Yes it is stocks and shares.  If I chose to make an overpayment on the pension (lgps or private), then I guess the employer has to support it?

For clarity there is no such thing as a private pension , although many people use the term .
I presume what you have is a workplace Direct Contribution pension , where with your and your employers contribute and  you build up a pot of money . When you leave the pension will usually come with you, and will effectively become your personal pension. ( this is the correct terminology ) 
The LGPS scheme is a Defined benefit scheme , which is better , especially if you still get a similar salary ( or better) .

So with regard to your current scheme , normally you can make extra/increased payments with no problem. In your case it would be better to increase your monthly contributions between now and May , rather than make a lump sum payment, due to the salary sacrifice arrangement.

Or as said you might be better off waiting until your new job . Or add some more but not the full amount .

kuratowski

Exactly, as @Albermarle says, you should have no problem increasing your pension contributions to either your current or future scheme.

Also I realize I used some jargon there without explaining it; AVCs = Additional Voluntary Contributions, this is typically the way you would make "overpayments" (additional contributions) to your LGPS.

There's nothing wrong with the S&S LISA either.

AlanP_2

Worth going through the process to get a quote from your new employer for what your current workplace DC scheme would "buy" you in the LGPS DB scheme.

Not all employers offer the "transfer in" option but many do. If yours does, the quotation process must start within 12 months of joining normally.