Are LISA's worth it?

ColdIron

Then a pension trumps a LISA for the tax relief. You can make contributions to a SIPP or possibly AVCs

amurray88_2

ColdIron said:

Then a pension trumps a LISA for the tax relief. You can make contributions to a SIPP or possibly AVCs

Would that contribution not have to be pre-tax on my payslip?

ColdIron

The SIPP would be post tax but 20% basic rate would be automatically reclaimed by the provider (a 25% uplift), you would reclaim the other 20% via HMRC. I'm less clear about the mechanics of an AVC but the effect would be the same, 100% relief. Perhaps others could comment

I would redirect future LISA contributions to one or the other of the pension options. I would keep the LISA as withdrawals would incur a charge before 60 but transfer it to a S&S LISA

amurray88_2

ColdIron said:

The SIPP would be post tax but 20% basic rate would be automatically reclaimed by the provider (a 25% uplift), you would reclaim the other 20% via HMRC. I'm less clear about the mechanics of an AVC but the effect would be the same, 100% relief. Perhaps others could comment

I would redirect future LISA contributions to one or the other of the pension options. I would keep the LISA as withdrawals would incur a charge before 60 but transfer it to a S&S LISA

Interesting! I didn't realise I could reclaim. Got along going on in the next 2 or 3 months (will begin to claim childcare voucher pre-tax) so will see where it ends up 👌

Albermarle

40% tax relief is a rare case of the Government being very generous, so not to be sniffed at.

Suggest you keep an eye on this forum as there are lots of threads about 40% tax relief, pensions etc

Herein is your first lesson 

Your Teachers Pension is a very good Defined Benefit ( DB ) pension.

When you start to contribute to a Personal Pension/SIPP/AVC it will be a Defined Contribution ( DC) pension.

It is important to understand the difference between the two types, as they are quite different.

Pension basics | Help with pension basics | MoneyHelper

[Deleted User]

I am not a first time buyer and a higher rate tax payer so i pay into my pension instead. 

WillPS

eskbanker said:

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?

Not really, as regular savers almost always have a fixed maturity unlike a H2B ISA. I'd argue they behaved more like a LISA.

Also, historic data is harder to come by but just for fun a quick Google search along the lines of "2015 regular saver" reveals a 2% offering from Nationwide got a good deal of attention, so the point stands.

eskbanker

WillPS said:

eskbanker said:

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?

Not really, as regular savers almost always have a fixed maturity unlike a H2B ISA. I'd argue they behaved more like a LISA.

Also, historic data is harder to come by but just for fun a quick Google search along the lines of "2015 regular saver" reveals a 2% offering from Nationwide got a good deal of attention, so the point stands.

Sure, I'm not claiming that regular savers are a perfect match, just that they're probably a more realistic comparator than base rate for a niche savings account allowing small monthly contributions.

Historic data can readily be found at archiving sites such as the Wayback Machine - for the record, at the time HTB ISA was launched on 1 December 2015, there were several 6% regular savers available, plus others at 5% and 4%:

https://web.archive.org/web/20151128042819/https://www.moneysavingexpert.com/savings/best-regular-savings-accounts/

and Halifax's HTB launch at 4% was an outlier, with its competitors mostly going with 2%:

https://web.archive.org/web/20151128042949/https://www.moneysavingexpert.com/savings/help-to-buy-isa/#bestbuys

WillPS

I don't really want to get lost in a comparison war, the point was and remains that there were many providers offering H2B ISAs from the get-go and the rates were objectively good (if not outstanding); compared to LISAs which have only a handful of providers for the cash version (7 years on from their release!) and mediocre rates.

masonic

HTB ISAs were a simpler product, and followed the cash ISA rules with some additional restrictions around monthly deposits and the requirement to issue a statement of closure. Most of the complex stuff, like applying for, and safeguarding, the Government bonus, was handled externally. It effectively had a limited lifetime and maximum balance when it was used for its intended purpose, and providers could elect not to pay interest above the maximum balance eligible for a bonus. Whereas the LISA had more a generous contribution limit, added complexity around the provider applying and adding the bonus, policing and repaying the bonus to the Government in certain situations, and processing declarations and third party withdrawals by a conveyancer. There was no maximum balance, and LISAs of >£50k will exist by now. The LISA was promoted by the Government as a retirement vehicle, although cash LISAs would probably be considered as unsuitable for this purpose, opening up potential misselling risk, which would need to be mitigated through staff training.

With added complexity comes increased costs, and with higher limits comes an increased interest liability, so it is no surprise that cash LISAs (which as opposed to S&S LISAs do not charge a management fee) were not widely adopted and did not pay very competitive rates.