Move LISA to SIPP?

mobro123

Hi all

Interested to hear thoughts on closing my LISA, taking the 25% hit and then setting up a SIP where I’ll benefit from 40% uplift as a HRT. 

I’m 32 and in LGPS. I started a LISA a few years back and currently £20k.
Not looking to pay more into LISA as I want the option of taking and semi retiring before 60. I’ll be mortgage free by 50 so will be able to throw more into SIPP in early 50s. The LGPS allows salary sacrifice for AVC. My current salary is £64k and im using salary sacrifice to reduce 40% tax - putting away £700 every 4 weeks on top of 8.5% LGPS. I’m Planning on maintaining high AVC contributions to stay below 40% tax. Once student loan is paid off (7 years) I was going to divert the additional £ into a SIPP so I can access before my LGPS and avoid early withdrawal fees.

If I kept below the HRT bracket in semi retirement, would I be better of closing the LISA and using the SIPP? I know I can take 25% SIPP tax free and I would be able to access 5 years earlier than LISA. 

Or should I just leave the LISA and open a SIPP once student loan is paid off? Is there a winner in terms of reducing tax!

Thanks,
M

EthicsGradient

You won't be able to access a SIPP until you're 57 (under current legislation - that might go up, of course, but so might the LISA age). So it's 3 years, not 5.

dunstonh

It seems more logical to keep the LISA for use in later retirement (post payment of LGPS and state pension) and use the SIPP for the pre-payment period when you have the personal allowance available.

i.e. LISA tax free on the drawdown whereas the SIPP wouldn't be above your personal allowance.

Dazed_and_C0nfused

mobro123 said:

Hi all

Interested to hear thoughts on closing my LISA, taking the 25% hit and then setting up a SIP where I’ll benefit from 40% uplift as a HRT. 

I’m 32 and in LGPS. I started a LISA a few years back and currently £20k.
Not looking to pay more into LISA as I want the option of taking and semi retiring before 60. I’ll be mortgage free by 50 so will be able to throw more into SIPP in early 50s. The LGPS allows salary sacrifice for AVC. My current salary is £64k and im using salary sacrifice to reduce 40% tax - putting away £700 every 4 weeks on top of 8.5% LGPS. I’m Planning on maintaining high AVC contributions to stay below 40% tax. Once student loan is paid off (7 years) I was going to divert the additional £ into a SIPP so I can access before my LGPS and avoid early withdrawal fees.

If I kept below the HRT bracket in semi retirement, would I be better of closing the LISA and using the SIPP? I know I can take 25% SIPP tax free and I would be able to access 5 years earlier than LISA. 

Or should I just leave the LISA and open a SIPP once student loan is paid off? Is there a winner in terms of reducing tax!

Thanks,
M

Firstly, you can only ever get a 25% "uplift" (20% of the gross amount).  Any additional tax benefit comes back to you, it doesn't increase your pension fund.

Also, based on the highlighted part of your post you don't appear to be a higher rate payer so you would only get basic rate relief.

Or do you have other income not mentioned?

Alexland

I'd be looking to spread the mortgage over a longer term and focus on contributing into both the pensions and LISA. Maybe enough into LGPS now to keep below 40% and then from age 50 when you can no longer contribute to LISA start contributing into a SIPP (if access age not increased to 60 by then) or S&S ISA for pre-60.

mobro123

dunstonh said:

It seems more logical to keep the LISA for use in later retirement (post payment of LGPS and state pension) and use the SIPP for the pre-payment period when you have the personal allowance available.

i.e. LISA tax free on the drawdown whereas the SIPP wouldn't be above your personal allowance.

Why is it more logical to keep the LISA and use post LGPS? Why not use it from say early 60s to support me through to LGPS and state pension age? 

mobro123

Alexland said:

I'd be looking to spread the mortgage over a longer term and focus on contributing into both the pensions and LISA. Maybe enough into LGPS now to keep below 40% and then from age 50 when you can no longer contribute to LISA start contributing into a SIPP (if access age not increased to 60 by then) or S&S ISA for pre-60.

So you’d increase mortgage term to allow £4k LISA contributions until 40, then use the £4k for SIPP contributions? In my head I’ve always wanted to clear the mortgage early and in 50s if possible. Currently paying £1400 a month on mortgage with 19 years left. If I were to increase mortgage term would paying more into the LGPS where I benefit from the additional NI savings be more efficient that paying into LISA? The downside being I can’t access until state pension age without early withdrawal penalty.

mobro123

Dazed_and_C0nfused said:

mobro123 said:

Hi all

Interested to hear thoughts on closing my LISA, taking the 25% hit and then setting up a SIP where I’ll benefit from 40% uplift as a HRT. 

I’m 32 and in LGPS. I started a LISA a few years back and currently £20k.
Not looking to pay more into LISA as I want the option of taking and semi retiring before 60. I’ll be mortgage free by 50 so will be able to throw more into SIPP in early 50s. The LGPS allows salary sacrifice for AVC. My current salary is £64k and im using salary sacrifice to reduce 40% tax - putting away £700 every 4 weeks on top of 8.5% LGPS. I’m Planning on maintaining high AVC contributions to stay below 40% tax. Once student loan is paid off (7 years) I was going to divert the additional £ into a SIPP so I can access before my LGPS and avoid early withdrawal fees.

If I kept below the HRT bracket in semi retirement, would I be better of closing the LISA and using the SIPP? I know I can take 25% SIPP tax free and I would be able to access 5 years earlier than LISA. 

Or should I just leave the LISA and open a SIPP once student loan is paid off? Is there a winner in terms of reducing tax!

Thanks,
M

Firstly, you can only ever get a 25% "uplift" (20% of the gross amount).  Any additional tax benefit comes back to you, it doesn't increase your pension fund.

Also, based on the highlighted part of your post you don't appear to be a higher rate payer so you would only get basic rate relief.

Or do you have other income not mentioned?

Thanks that makes sense. I don’t have any other income but am likely to get inheritance in next 20 years slams was planning on putting as much as I can into SIPP for a few years to benefit from uplift

Alexland

mobro123 said:
So you’d increase mortgage term to allow £4k LISA contributions until 40, then use the £4k for SIPP contributions? In my head I’ve always wanted to clear the mortgage early and in 50s if possible. Currently paying £1400 a month on mortgage with 19 years left.

You can make LISA contributions until age 50 if you wanted to then switch that £4k pa to the SIPP. Maybe once you complete your student loan repayments then you could put that spare income towards the SIPP too. You may also get some spare income from your pay rising with promotions/inflation to put in the SIPP if the income tax bands ever go up.

I used to overpay mortgages as it was the obvious thing to do when you first get one to save the interest cost. But that's missing the big picture that you could get similar or better return PLUS tax relief or government bonuses by investing in your pension(s) and LISA.

Maybe re-frame the mortgage in your mind from being a 'heavy cross to bear' into being 'a bit of useful leverage' in your portfolio. For that feeling of security remember your LISA is still accessible (at penalty) if needed and hopefully you have some emergency savings. So rather than aiming to be 'mortgage free' aim to be 'mortgage neutral' ie the point at which you have enough wealth to have repaid it if you wanted to but have positively chosen a different path - make up your own rules. Still others will point out that repaying your mortgage early gives security but you pay an opportunity cost so it's for you to judge.

mobro123 said:
If I were to increase mortgage term would paying more into the LGPS where I benefit from the additional NI savings be more efficient that paying into LISA? The downside being I can’t access until state pension age without early withdrawal penalty.

The benefits of making basic rate sal sac pension contributions vs adding into a LISA are similar because the extra pension contributions would be at least in part taxable on withdrawal (assuming the existing contributions use up your personal allowance in retirement). If your pension(s) get big enough that you hit the maximum tax free lump sum then a LISA would be better than basic rate sal sac pension contributions as they would be fully taxed on the way out (so it's simply the NI saving vs the LISA bonus). However it's worth considering that a SIPP wrapper may have inheritance tax planning advantages if you never live to draw the income.

You might decide to use the anticipated inheritance, lump sum from your pension (if they make sense to take) or LISA at 60 to clear the mortgage balance later but then for that you need a decent amount owing at that age which might mean you look for an interest only mortgage or one that runs until your 70s or 80s even if you don't intend to run it that long. It's all stuff to think about and not without risk it depends what you would feel comfortable with.

mobro123

Alexland said:

mobro123 said:
So you’d increase mortgage term to allow £4k LISA contributions until 40, then use the £4k for SIPP contributions? In my head I’ve always wanted to clear the mortgage early and in 50s if possible. Currently paying £1400 a month on mortgage with 19 years left.

You can make LISA contributions until age 50 if you wanted to then switch that £4k pa to the SIPP. Maybe once you complete your student loan repayments then you could put that spare income towards the SIPP too. You may also get some spare income from your pay rising with promotions/inflation to put in the SIPP if the income tax bands ever go up.

I used to overpay mortgages as it was the obvious thing to do when you first get one to save the interest cost. But that's missing the big picture that you could get similar or better return PLUS tax relief or government bonuses by investing in your pension(s) and LISA.

Maybe re-frame the mortgage in your mind from being a 'heavy cross to bear' into being 'a bit of useful leverage' in your portfolio. For that feeling of security remember your LISA is still accessible (at penalty) if needed and hopefully you have some emergency savings. So rather than aiming to be 'mortgage free' aim to be 'mortgage neutral' ie the point at which you have enough wealth to have repaid it if you wanted to but have positively chosen a different path - make up your own rules. Still others will point out that repaying your mortgage early gives security but you pay an opportunity cost so it's for you to judge.

mobro123 said:
If I were to increase mortgage term would paying more into the LGPS where I benefit from the additional NI savings be more efficient that paying into LISA? The downside being I can’t access until state pension age without early withdrawal penalty.

The benefits of making basic rate sal sac pension contributions vs adding into a LISA are similar because the extra pension contributions would be at least in part taxable on withdrawal (assuming the existing contributions use up your personal allowance in retirement). If your pension(s) get big enough that you hit the maximum tax free lump sum then a LISA would be better than basic rate sal sac pension contributions as they would be fully taxed on the way out (so it's simply the NI saving vs the LISA bonus). However it's worth considering that a SIPP wrapper may have inheritance tax planning advantages if you never live to draw the income.

You might decide to use the anticipated inheritance, lump sum from your pension (if they make sense to take) or LISA at 60 to clear the mortgage balance later but then for that you need a decent amount owing at that age which might mean you look for an interest only mortgage or one that runs until your 70s or 80s even if you don't intend to run it that long. It's all stuff to think about and not without risk it depends what you would feel comfortable with.

Thanks appreciate the detail and explanation. I hadn't considered the benefit of keeping the mortgage longer and increasing LISA/SIPP/ LGPS contributions.

dunstonh

mobro123 said:

dunstonh said:

It seems more logical to keep the LISA for use in later retirement (post payment of LGPS and state pension) and use the SIPP for the pre-payment period when you have the personal allowance available.

i.e. LISA tax free on the drawdown whereas the SIPP wouldn't be above your personal allowance.

Why is it more logical to keep the LISA and use post LGPS? Why not use it from say early 60s to support me through to LGPS and state pension age? 

Why would you use tax free sources when you would be a non-taxpayer?   You waste the tax free money by doing that.    You would want to use taxable sources.
e.g. your SIPP will allow £16.7k per annum drawn free of tax to utilise the current personal allowance until your state pension and LGPS is paid  (75% to the unused personal allowance with 25% on top).     You would save tax free sources, like the LISA, for when you become a taxpayer.