Are LISA's worth it?

amurray88_2

I'm trying to get my head round the maths of LISA's.
I'm 35 so potential of 15 years investing into them. BUT, that 10 years of no government contribution between 50 and 60 seems, to me, to be a huge drawback? Is it just me?

If I make max contribution then I put in £60k topped up to 75k by government. I then can't touch it for 10 years from 50-60. Would inflation render the £15k government top up in those 10 years worthless? Sorry, not sure I'm explaining it well - maybe someone will know what I'm meaning.

Albermarle

amurray88_2 said:

I'm trying to get my head round the maths of LISA's.
I'm 35 so potential of 15 years investing into them. BUT, that 10 years of no government contribution between 50 and 60 seems, to me, to be a huge drawback? Is it just me?

If I make max contribution then I put in £60k topped up to 75k by government. I then can't touch it for 10 years from 50-60. Would inflation render the £15k government top up in those 10 years worthless? Sorry, not sure I'm explaining it well - maybe someone will know what I'm meaning.

If you saving in a LISA for retirement purposes, then it should be a Stocks and Shares LISA. So over 25 years you would expect the investments to grow at least above inflation, and hopefully significantly more ( assuming the investments were appropriate) and this growth should continue over the 10 years from 50 to 60. 

Is there are a specific reason why you are looking at a LISA rather than a pension ? There are pros and cons to both, explained in the latter part of this link.
Lifetime ISA (LISA): how they work & best buys (moneysavingexpert.com)

Alistair31

What would you be investing in that you foresee negative growth over a 10 year period? 

wjr4

Have you maxed your pension first?

Kaizen917

I take it that you are thinking of the LISA as a pension instrument rather than ever using it for a deposit.

The 50-60 gap itself doesnt bother me because as a previous reply puts it you would rather want to be investing in a S&S if you are in for the long run.

However (rant time...), my issue with the LISA as a product is how those silly rules/restrictions are stacked onto it to the point that providers are reluctant to even deal with it. We all know that Martin Lewis is campaining on the 450k threshold but there also a lot more that isnt on with it, like the part where it takes up 4k out of our 20k ISA allowance to spare with your cash over something that is hardly different from a SIPP arrangement... and that you can access at 60 instead of 55(57)...

Personally, I do invest in a S&S LISA but this year ive been reluctant to add the maximum to it so I just did extra to my ISA instead (in practice I was hesitant to add all 4k last year too but stuck to my regular payments).Until I see some government review on the LISA that either changes it to making it a more attractive product to providers, or at least provide a roadmap on how its about to develop (so that Im sure Im not wasting my time with it), I will probably add little to nothing into it. 

WillPS

The biggest issue with LISAs is the penalty element, IMHO. It scares off people, who fear getting out less than what they put in, and it scares off providers who are concerned it has potential for liability from a mis-selling standpoint.

That in turn leads to a situation where LISAs are 1-2% points behind the market rate for fixed term ISAs, which LISA providers can get away with because there's a lack of competition. It's a far cry from the Help to Buy ISA scheme, which LISAs succeeded, which more or less every major provider got involved in, and even in many cases used as a loss leader (I think Halifax's launch product was 4.5% when the BoE rate was at or below 0.5% still).

ColdIron

A LISA has some advantages, for basic rate taxpayers at least

A pension has tax relief on the way in but potential tax on the way out. An ISA has no tax relief on contributions but tax free withdrawals. Both protect you from capitals gains and dividend tax. A LISA has the best of both worlds

The obvious attraction of a cash LISA is the £1,000 top up (equivalent to pension basic rate tax relief) and would be suitable if you were expecting to use it for a property deposit. But you wouldn't use cash for 25 years because, as you say, inflation would erode its value. However you would expect investments to at least match inflation

When you start getting your state pension it will take up most of your personal allowance and any private pension income will be taxed (although not if you retire early)

Some tax free income at that stage is quite attractive

I was too old to start one but would have done if I could

Pensions still have quite a few additional advantages, especially if you pay tax at a higher rate, so you should prioritise them, but a LISA still has its place. That you didn't get a top up for a few years is really neither here nor there

eskbanker

WillPS said:

It's a far cry from the Help to Buy ISA scheme, which LISAs succeeded, which more or less every major provider got involved in, and even in many cases used as a loss leader (I think Halifax's launch product was 4.5% when the BoE rate was at or below 0.5% still).

But it's probably worth using regular saver rates as a more appropriate benchmark than base rate, given that HTB ISAs were/are restricted to no more than £200 per month?

noclaf

I opened a Cash LISA a number of years back to use towards a first property deposit.

Due to a unforseen change in circumstances meaning the LISA could no longer be used for a deposit, I transferred to AJ BELL and currently it's all invested in a S&P500 ETF and will be used as a supplement towards retirement or maybe gifted to my son subject to how my situation pans out closer to retirement. I stopped contributing a number of years back as maxxing my work pension is more advantageous from a tax and employer contributions perspective.

So consider your full circumstances and also to pick up a point mentioned on another post I am curious how popular and 'commercial' these products are for the platforms offering them and whether we could see some platforms withdrawing them all together....assuming they receive a sweetener from the government and any platform/fund fees received then maybe less likely but I doubt they have the uptake of other investment wrappers.

dunstonh

I'm 35 so potential of 15 years investing into them. BUT, that 10 years of no government contribution between 50 and 60 seems, to me, to be a huge drawback? Is it just me?

its just you.  That is not a drawback.  You would just switch to pension for those years.

You don't suddenly lose investment returns because you are no longer paying it it.  The pot you have built up will still get a return.

Would inflation render the £15k government top up in those 10 years worthless? 

One assumes that you would be using a stocks and shares LISA and not a cash LISA.     S&S gives you inflation protection over the long term.

LISA beats pension for basic rate taxpayers on amounts above maximum employer contributions.  However, pension beats LISA for higher rate taxpayers where the whole contribution is in the higher rate band.

amurray88_2

Maybe I should have noted - I am a teacher and in the high tax bracket. This means my workplace pension is a set contribution with no option of adding to it I believe.