Saving for early retirement (S&S ISA vs S&S LISA)

planningforfuture

Hello,

I am after bit of feedback/thoughts to feed my next financial steps considerations. 

I hold cash LISA and after I purchased house there is currently £2 in it. 

But I am considering  moving it to S&S LISA (even though I am 40 this should be doable with Moneybox). 

My plan is to retire earlier. 

I maximise my input to my defined benefit pension scheme. 

However to access full balance I need to be 65. Although potentially I can access it from age of 57 my pot would be significantly reduced. 

Also I don’t really know when I want to/ will be forced to (due to personal circumstances) retire. As it stands I don’t anticipate retiring at least for another decade. 

For the time between me retiring and accessing my employee pension I need to find a way of funding myself. 

Two things I currently consider to save for that period:

Stock & shares Lisa  or standard stock & shares Isa. 

My thoughts is to pay into stock&share Lisa for next 10 years to use the 25% bonus, and than leave it until the 60 when I can access it. 

Between age 50 and retiring try to save as much as possible in Isa (by then depending on the planned retirement date S&s Isa or cash Isa). 

I am battling with following: does bonus outweighs the issue of not being able to access LISA until 60. 

Or maybe the S&S Isa would be close to follow S&S Lisa (being of course short of bonus money growth) but fact I can access it anytime is the way to go. 

I do understand that it is my decision, but would appreciate other people’s thoughts in case I missed something when considering my options.

Thank you in advance!

ColdIron

Are you a higher rate taxpayer, or are you likely to be before retirement?

planningforfuture

Hi, yes I am.

I maximise my pension input. last couple of years I used AVC and saved almost up to annual limit input amount (£40k, now I know it is £60k). 

Issue with pension is that I can’t access it before 57, and even by accessing than I would take a massive hit on the balance.

ColdIron

I'm not sure why you would take a massive hit but I was thinking along the lines that if you were not paying higher rate yet then you could transfer from an ISA later for the tax relief, something you couldn't do with a LISA (without taking a massive hit)

I trust you are aware that you can't access the LISA until 60

planningforfuture

Thank you for the comment. 

Unfortunately should I decided to access my pension at 57 I would have to accept 25% reduction of the retirement balance predicted to be available at 65. I am on the defined benefit scheme. 

Yes, I am aware of the limit of 60.
standard S&S ISA maybe a better option overall. 

ColdIron

I am not sure how your AVCs work (as opposed to the DB pension which would see a reduction) but you could pay into a SIPP, get full tax relief, and access it at 57 (or whatever) without any reduction

For a 40% tax payer a pension is a no brainer over an ISA. It doesn't have to be all or nothing, perhaps a mixture of the two. I can't see that a LISA brings much to the party in your position

planningforfuture

Thank you, I didn’t think about SIPP. I will definitely look into this. 

Potentially LISA is the wrong way to go. 

My pension is defined benefit, just not a standard final salary pension, more of retirement balance plan. 

Albermarle

Without the exact figures it is not so easy to comment.

You are already making substantial pension contributions as I understand it. Do you earn enough that more contributions made into a SIPP would still get 40 % tax relief.?

For example in simple terms if you earned £90K and were already contributing £30K to your workplace pension,
Then you could only add £10K ( gross) to a SIPP and still get 40% tax relief.

That assumes you have no other income or complications with your tax code.

planningforfuture

Thank you for mentioning the sipp. 

As the sipp can be accessed only from the age of 57 (as is my employee pension) I would be potentially better off increasing even further my pension contribution. Current annual limit is now £60k, and I am extremely unlikely to reach it.