Suspend pension contributions in lieu of LISA?

MrFrugalFever

With pensions performing poorly at the moment and my burning desire to maximise my deposit for a property to decrease LTV as first time buyer, it has occurred to me that perhaps I could suspend my pension payments for 6 months and place that money in to my LISA which will return guaranteed 25%.

My pension is with Aegon (SIPP) and between me, employer & tax rebate there is approximately £350-400 going in each month, however of late the investment return is just shy of -£700 in last 6 months.

I understand the markets can change on a whim so to speak but just wondering on peoples thoughts? Stuck with pension contributions of put in to LISA, which is in effect loosely contributing to a second pension in the form of tangible bricks & mortar.

Albermarle

If you are planning to become a first time buyer soon (but in more than one year) then having a Cash Lisa makes sense.
Ideally you should keep up the pensions contributions at the same time, at least enough to maintain the maximum contribution from your employer, which is free money.
Pensions are a long term investment, so whether they go up or down in one specific year, will have little effect on the final outcome. 

eskbanker

MrFrugalFever said:

my burning desire to maximise my deposit for a property to decrease LTV as first time buyer

[...]

Stuck with pension contributions of put in to LISA, which is in effect loosely contributing to a second pension in the form of tangible bricks & mortar.

Those seem like different drivers to me - are you seeking a better LTV or a more expensive property?

In general it makes sense to maximise LISA contributions if you're using it for a first time property purchase, but if doing so and claiming the 25% bonus means missing out on employer contributions to your penalty, which are also free money, that complicates the analysis.  How close are you to an LTV threshold for a more competitive mortgage?

MrFrugalFever said:

My pension is with Aegon (SIPP) and between me, employer & tax rebate there is approximately £350-400 going in each month, however of late the investment return is just shy of -£700 in last 6 months.

Short term investment returns are irrelevant to pension planning, on the basis that if you have a LISA you're presumably nowhere near retirement age yet?

dunstonh

With pensions performing poorly at the moment 

Pensions are not performing poorly.  Pensions are just a tax wrapper.  The investments held in the wrapper perform.  If you hold the same investments in a LISA, then you get the same return.

 it has occurred to me that perhaps I could suspend my pension payments for 6 months and place that money in to my LISA which will return guaranteed 25%.

The pension wrapper also gets a 25% uplift for basic rate/non rate taxpayers.   However, the pension also gets the free money from the employer.  A LISA does not.

I understand the markets can change on a whim so to speak but just wondering on peoples thoughts? Stuck with pension contributions of put in to LISA, which is in effect loosely contributing to a second pension in the form of tangible bricks & mortar.

opting out would lose the employer contributions and increase your NI and reduce your retirement income and stop you buying investments at cheaper rate.

Times like this are great news for people paying in monthly.  You seem to want to do the opposite.

MrFrugalFever

eskbanker said:

MrFrugalFever said:

my burning desire to maximise my deposit for a property to decrease LTV as first time buyer

[...]

Stuck with pension contributions of put in to LISA, which is in effect loosely contributing to a second pension in the form of tangible bricks & mortar.

Those seem like different drivers to me - are you seeking a better LTV or a more expensive property?

In general it makes sense to maximise LISA contributions if you're using it for a first time property purchase, but if doing so and claiming the 25% bonus means missing out on employer contributions to your penalty, which are also free money, that complicates the analysis.  How close are you to an LTV threshold for a more competitive mortgage?

MrFrugalFever said:

My pension is with Aegon (SIPP) and between me, employer & tax rebate there is approximately £350-400 going in each month, however of late the investment return is just shy of -£700 in last 6 months.

Short term investment returns are irrelevant to pension planning, on the basis that if you have a LISA you're presumably nowhere near retirement age yet?

I wish to put down either a 15% deposit or even try and stretch to a 20% deposit by this time next year (give or take a couple of months).

My thought process may have been flawed but I was looking at it from the point of view that I would have a larger deposit for the house purchase quicker thus providing me with less mortgage, less interest and ultimately a second ‘pension’ later in life should I need to sell the house and raise funds etc. So it wasn’t as though I was going save the pension contributions in to a holiday fund etc

MrFrugalFever

dunstonh said:

With pensions performing poorly at the moment 

Pensions are not performing poorly.  Pensions are just a tax wrapper.  The investments held in the wrapper perform.  If you hold the same investments in a LISA, then you get the same return.

 it has occurred to me that perhaps I could suspend my pension payments for 6 months and place that money in to my LISA which will return guaranteed 25%.

The pension wrapper also gets a 25% uplift for basic rate/non rate taxpayers.   However, the pension also gets the free money from the employer.  A LISA does not.

I understand the markets can change on a whim so to speak but just wondering on peoples thoughts? Stuck with pension contributions of put in to LISA, which is in effect loosely contributing to a second pension in the form of tangible bricks & mortar.

opting out would lose the employer contributions and increase your NI and reduce your retirement income and stop you buying investments at cheaper rate.

Times like this are great news for people paying in monthly.  You seem to want to do the opposite.

This is exactly why I started the thread to gather information from others who know more about it than me. Pensions have never been of interest to me, mainly because I just don’t understand them or the investment side of things that sits behind them. As far as I’m concerned for the last however many years I was just told to put money in to my pension for later in life.

You’ve clarified things and it appears that in reality keeping the pension going is the most financially sensible route to take.

thanks for the input.

[Deleted User]

MrFrugalFever said:

eskbanker said:

MrFrugalFever said:

my burning desire to maximise my deposit for a property to decrease LTV as first time buyer

[...]

Stuck with pension contributions of put in to LISA, which is in effect loosely contributing to a second pension in the form of tangible bricks & mortar.

Those seem like different drivers to me - are you seeking a better LTV or a more expensive property?

In general it makes sense to maximise LISA contributions if you're using it for a first time property purchase, but if doing so and claiming the 25% bonus means missing out on employer contributions to your penalty, which are also free money, that complicates the analysis.  How close are you to an LTV threshold for a more competitive mortgage?

MrFrugalFever said:

My pension is with Aegon (SIPP) and between me, employer & tax rebate there is approximately £350-400 going in each month, however of late the investment return is just shy of -£700 in last 6 months.

Short term investment returns are irrelevant to pension planning, on the basis that if you have a LISA you're presumably nowhere near retirement age yet?

I wish to put down either a 15% deposit or even try and stretch to a 20% deposit by this time next year (give or take a couple of months).

My thought process may have been flawed but I was looking at it from the point of view that I would have a larger deposit for the house purchase quicker thus providing me with less mortgage, less interest and ultimately a second ‘pension’ later in life should I need to sell the house and raise funds etc. So it wasn’t as though I was going save the pension contributions in to a holiday fund etc

Where are you going to live when you sell your home?