Is the LISA going towards a dead end?

cloud_dog

eskbanker said:

masonic said:

eskbanker said:

cloud_dog said:

I think it is important for basic rate tax payers to understand that using a LISA for retirement purpose (for additional money) is now a very efficient vehicle, even for those who benefit from Salary Sacrifice, and even more so after April. (I appreciate most on here will understand this)

Not sure I'm following, what changes in the new tax year specifically benefit LISA holders?

I presume this is alluding to the fact that there is less to be gained from salary sacrifice (made before deduction of now lower employee NI contributions). 

Perhaps, although the way the post was punctuated implied (to me) that LISA's efficiency is better in 2024/25 full stop, rather than specifically versus sal sac?

From a pure tax efficiency perspective for a BRT payer a LISA is the most efficient option.  This applies for both a BRT payer with and without SS.  Under the 24/25 NI rules the gap will widen again.

masonic

cloud_dog said:

eskbanker said:

cloud_dog said:

I think it is important for basic rate tax payers to understand that using a LISA for retirement purpose (for additional money) is now a very efficient vehicle, even for those who benefit from Salary Sacrifice, and even more so after April. (I appreciate most on here will understand this)

Not sure I'm following, what changes in the new tax year specifically benefit LISA holders?

The overall difference (savings) between a SS pension arrangement and a LISA will widen in the LISAs favour due to the SS NIC saving reducing to 8%, so overall SS pension BRT contribution benefit 28%, LISA benefit 25%.  When you then factor in the basic assumption for taxing the 75% of the pension*, the LISA (will be) a clear winner.

* - of course an individuals circumstances will dictate the over all benefit re liable taxation on the pension.

How do you get to a 28% benefit? Say someone puts in £100 of their pre-tax income, rather than receive the net income after basic rate tax and NI of £72. That's equivalent to receiving a 38.9% benefit on an equivalent £72 net pay contribution (72 x 1.389 = 100). If that £72 instead went into a LISA, they'd get a 25% benefit and end up with £90 (72 x 1.25 = 90). So you should compare 38.9% with 25%.

(no disagreement that the LISA has the edge if that £100 in the pension forms part of someone's retirement income that would fall within their BR band and reduces to £85 - overall benefit in that scenario is 18%)

eskbanker

cloud_dog said:

eskbanker said:

masonic said:

eskbanker said:

cloud_dog said:

I think it is important for basic rate tax payers to understand that using a LISA for retirement purpose (for additional money) is now a very efficient vehicle, even for those who benefit from Salary Sacrifice, and even more so after April. (I appreciate most on here will understand this)

Not sure I'm following, what changes in the new tax year specifically benefit LISA holders?

I presume this is alluding to the fact that there is less to be gained from salary sacrifice (made before deduction of now lower employee NI contributions). 

Perhaps, although the way the post was punctuated implied (to me) that LISA's efficiency is better in 2024/25 full stop, rather than specifically versus sal sac?

From a pure tax efficiency perspective for a BRT payer a LISA is the most efficient option.  This applies for both a BRT payer with and without SS.  Under the 24/25 NI rules the gap will widen again.

Still not following - if comparing £4K payments to a LISA versus the same into a pension on a RAS basis, how do the forthcoming NI changes affect that?

Kaizen917

cloud_dog said:

I think it is important for basic rate tax payers to understand that using a LISA for retirement purpose (for additional money) is now a very efficient vehicle, even for those who benefit from Salary Sacrifice, and even more so after April. (I appreciate most on here will understand this)

I hope you are right and the LISA remains at least a decent product to boost a pension. I personally dont see how it beats the SS I do from work when my employer adds the savings on NI towards my workplace pension, apart from maybe the fact that the provider they are using is far from ideal.

cloud_dog

Kaizen917 said:

cloud_dog said:

I think it is important for basic rate tax payers to understand that using a LISA for retirement purpose (for additional money) is now a very efficient vehicle, even for those who benefit from Salary Sacrifice, and even more so after April. (I appreciate most on here will understand this)

I hope you are right and the LISA remains at least a decent product to boost a pension. I personally dont see how it beats the SS I do from work when my employer adds the savings on NI towards my workplace pension, apart from maybe the fact that the provider they are using is far from ideal.

After April 5th / BRT payer

£100 in salary.  Net paid equals £72.  Paid in to LISA £72, plus 25% / £18 equals £90 in the LISA.

£100 in to pension (cost £80 / £72 (SS)).

So, same cost for SS, and slightly more where no SS, but £10 more in the pension.

 

Age 60 withdrawal:

LISA £90

Pension based on a simple 25% TFLS and 75% taxed*, equals net £85.

* - I appreciate that we cannot be certain that all of the 75% will be reduced by taxation.

masonic

Kaizen917 said:

cloud_dog said:

I think it is important for basic rate tax payers to understand that using a LISA for retirement purpose (for additional money) is now a very efficient vehicle, even for those who benefit from Salary Sacrifice, and even more so after April. (I appreciate most on here will understand this)

I hope you are right and the LISA remains at least a decent product to boost a pension. I personally dont see how it beats the SS I do from work when my employer adds the savings on NI towards my workplace pension, apart from maybe the fact that the provider they are using is far from ideal.

The hierarchy for someone on a modest income would be something like the following

1. Workplace pension via salary sacrifice up to maximum employer match, and beyond to ensure personal allowance can always be maxed out in retirement
   
2. S&S LISA
3. Workplace pension via salary sacrifice until you hit minimum wage
4. SIPP

If permitted, partial transfers from the workplace pension to a SIPP you control may be worthwhile if your workplace pension is rubbish.