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Pension vs LISA

Tonski
Tonski Posts: 60 Forumite
Part of the Furniture 10 Posts Name Dropper Combo Breaker
edited 16 March 2023 at 10:54AM in ISAs & tax-free savings
I am debating between paying more money into my pension and opening a LISA for retirement planning and was after some advice. I understand that long term, for the vast majority of people it's going to work out a lot better paying into a pension rather than a LISA due to the tax relief and getting free money from your employer. My question is, once you've matched the maximum employer contribution, is it better to put any additional money into a LISA and get the 25% bonus, or is it still better to pay the additional money into the pension? For example, my company match your contribution up to 10%. Above this level, where i'm not going to get any free money from my employer, should I save say £300 a month into a LISA or pay this extra into my pension? I don't have any LISA's at the minute and I'm 38 so coming towards the end of when I could potentially use one. My current salary is just in the higher tax band but as my pension is a salary sacrifice scheme, I only pay 20%. If my tax goes up to the 40% rate, I guess the pension option will become more appealing over a LISA but at the minute which is best?

Comments

  • Albermarle
    Albermarle Posts: 24,187 Forumite
    10,000 Posts Sixth Anniversary Name Dropper
    If you scroll down to the later parts of this article, you will a pros and cons table for pension vs LISA.

    Lifetime ISA (LISA): how they work & best buys - Money Saving Expert
  • WillPS
    WillPS Posts: 4,317 Forumite
    Part of the Furniture 1,000 Posts Newshound! Name Dropper
    I think you'd still be better making higher contributions from your salary, unless you earn less than £12,570 (in which case the LISA would be better as you'd be earning a 20% bonus despite the fact no income tax was due on the money at the point of earning).

    Do take note of the pros and cons mentioned above.
  • jimjames
    jimjames Posts: 17,896 Forumite
    Part of the Furniture 10,000 Posts Photogenic Name Dropper
    edited 17 March 2023 at 2:51PM
    Normally you also save NI even in 20% taxpayer if you salary sacrifice so that gives boost to pension vs LISA
    Remember the saying: if it looks too good to be true it almost certainly is.
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