Transferring Cash LISA to S&S LISA? Or S&S ISA?

AuntSal

I wonder if anyone has any advice on this as I am struggling to find the answers.

I am age 48 and took out a cash LISA when I was 39. As a home-owner this was for retirement. I've been maxing it out and now am now down to my last 18 months of being able to contribute. I am currently getting a rate of just over 3% interest. Obviously I don't plan to access until at least 60.

Thinking of it just sitting for 10 years and not invested I am starting to think this might be a wasted opportunity. I am comfortable with investments and the associated risk. I'm trying to explore if I could/should transfer it out. My current provider says I can, but I can't find any information from any of the usual suspects - AJ Bell, Vanguard, etc. If they will let me transfer it in. I am not sure if I could do this now, before I am 50, into a S&S LISA also and continue to contribute for the next 18 months. Or can I just transfer it in once I've reached 50 to a standard S&S ISA and continue to add for the next 10 years also?

I realise I've already received the 25% government bonus and therefore a great return on my money and it would be good to keep as a separate cash pot, entirely risk free in the cash LISA. Especially as I hope to retire a little early, circa age 60 and not pull down from my company pension. Alongside this, I intend to continue saving into a separate S&S ISA that I already have running. I will just also divert the £4K I currently save into the LISA to my S&S ISA for the next 10 years.

So am I missing a trick by not transferring my Cash ISA to a S&S LISA for the next 10 years? Is it better to accept my good returns to date and on-going 3%-ish and keep this pot 'safe' from investment fluctuations? Can I even transfer it to a S&S LISA or ISA (penalty free?) and if so which providers offer this service?

dunstonh

I am age 48 and took out a cash LISA when I was 39. As a home-owner this was for retirement. I've been maxing it out and now am now down to my last 18 months of being able to contribute. I am currently getting a rate of just over 3% interest. Obviously I don't plan to access until at least 60.

Cash LISAs were never designed for retirement planning and would be wasteful for that purpose.   

 Or can I just transfer it in once I've reached 50 to a standard S&S ISA and continue to add for the next 10 years also?

no.

I realise I've already received the 25% government bonus and therefore a great return on my money and it would be good to keep as a separate cash pot, entirely risk free in the cash LISA. 

It's not entirely risk-free in a cash LISA.    You have increased shortfall risk and inflation risk whilst removing investment risk.   using investments increases investment risk but reduces shortfall risk and inflation risk.

Especially as I hope to retire a little early, circa age 60 and not pull down from my company pension.

You would be better drawing from a pension between 60-67 (at least for the 75% segment to match the unused personal allowance with the 25% TFC on top = £16,760 p.a. using todays allowance).  Using the LISA for that amount would also be very wasteful.

Alongside this, I intend to continue saving into a separate S&S ISA that I already have running. I will just also divert the £4K I currently save into the LISA to my S&S ISA for the next 10 years.

Pension beats ISA.  So, why are you using the S&S ISA wrapper and not pension wrapper?

Can I even transfer it to a S&S LISA or ISA (penalty free?)

Yes.  Although some providers have limitations.

Albermarle

Can I even transfer it to a S&S LISA or ISA (penalty free?) and if so which providers offer this service?

You should be able to transfer from a cash LISA to a S&S LISA . However from previous threads some providers it seems do not allow it after age 40. However AJ Bell do and probably there are others.

Alexland

AuntSal said:

Or can I just transfer it in once I've reached 50 to a standard S&S ISA and continue to add for the next 10 years also?

Technically you can do this but moving out of the LISA wrapper would incur the early withdrawal before 60 charge which is greater than the bonus and effective 6.25% penalty compared to if you had saved in a normal Cash ISA at the same rates.

As above cash LISAs are inappropriate for retirement saving so it was a mistake to open it in the first place but I can see how it's confusing. AJ Bell accept transfers from over 40s and many of us are happy with our LISAs there as they are a very competent company. You would then need to decide what investments to make there.

As an aside have you considered if contributing to a LISA is more or less efficient than making higher pension contributions for your circumstances?

eskbanker

dunstonh said:

 Or can I just transfer it in once I've reached 50 to a standard S&S ISA and continue to add for the next 10 years also?

no.

Can I even transfer it to a S&S LISA or ISA (penalty free?)

Yes.  Although some providers have limitations.

These read like different answers to the same question - for OP's benefit, it is possible to transfer from a LISA into a S&S ISA, but doing so before 60 would incur a 25% withdrawal penalty.

AuntSal

Thank you for your responses. That's very helpful. I think AJ Bell over 40's transfer makes sense in my situation and that is what I was looking for. I feel I might as well pay in the maximum amount for the next 2 years, get the government bonus and then invest rather than sit and potentially depreciate.

In answer to the responses saying it was a big 'mistake' for me to take out a LISA aged 39...

I do have a company pension and contribute a large sum every year as does my employer. I will continue to increase this also. I do understand that I benefit potentially more from the tax relief putting everything into my pension and not saving elsewhere, but I don't feel very comfortable with this.

I took out the LISA as when it came out they were actually advertised for retirement savings (as well as help to buy) and it has a guaranteed 25% return for those first 10 years.  Compound interest is now doing well, so I don't see how this is a mistake as I now have a tidy cash pot as well as a healthy pension pot.

My purpose is to have a cash pot so I can retire a little earlier and have a tax free wrapper around my long-term savings. If the market was a little down when I wanted to retire, I could live off this rather than drawing down my pension or use it to top it up, cash free and not eat into my 25% tax free amount too much. I am feeling a little shot down!

I quote from AJ Bell's website, 'Lifetime ISAs are a type of account that help you save for two very important goals – your first home in the UK, and your retirement.' It does mention savings may be more valuable in a pension. but is it wrong to do both?

Alexland

AuntSal said:

In answer to the responses saying it was a big 'mistake' for me to take out a LISA aged 39...

It's not that 'big' but the mistake wasn't to open a LISA but to open the Cash version not the S&S version if aiming for age 60+. Over longer time periods cash nearly always provides a lower return than most sensible investment options. You would have got the 25% bonus either way but for example we've had around 28% inflation in the past 5 years so it's been hard for cash to maintain it's spending power let alone provide real growth.

The government confused people with this product and should have at the very least required providers to label their products 'First Time Buyer LISA' and 'Retirement LISA' to guide people into opening the right type for the likely timescales.

The providers struggled to inform consumers as it was such a complicated thing and so individual to people's circumstances for example the rate of tax they pay and if they also have access to a sal-sac to determine if they would have been better paying the money into a pension.

But there is no problem doing both pension and LISA in parallel that's what many of us have been doing but it's just worth doing the maths to ensure you understand the relative benefits each might provide as you may wish to tilt your contributions one way or another.

AuntSal

Alexland said:

AuntSal said:

In answer to the responses saying it was a big 'mistake' for me to take out a LISA aged 39...

It's not that 'big' but the mistake wasn't to open a LISA but to open the Cash version not the S&S version if aiming for age 60+. 

Thanks for your time responding. That's super helpful and makes sense. Yes, I realise this now and didn't even think about using a S&S LISA as I didn't know they existed when I was 39 and I took it out to be honest. It wasn't until I realised it would be sitting there making circa 3% interest for 10 years I realised it may be better off elsewhere but thought my age limited me!  I will take a look at the AJ Bell one as that seems suitable.

Alexland

AuntSal said:

I will take a look at the AJ Bell one as that seems suitable.

Also worth mentioning AJ Bell have 2 different LISA options

Their Dodl app LISA is lower % ongoing platform charge (min £1/mo) and gives a limited choice of good investment options.
https://dodl.co.uk/lifetime-isa

Their main AJ Bell LISA has a higher % ongoing platform charge with trade fees (but the ongoing can be capped at £42 pa once the account is big enough if you invest in exchange traded assets) and has a much wider range of investment choices which some might find overwhelming.
https://www.ajbell.co.uk/isa/lifetime-isa

Once a main AJ Bell LISA gets big enough then the capping on exchange traded assets can work out cheaper than the Dodl account even after paying occasional trade fees.

Both accept transfers from people already 40+

Nurse2047

I transferred from a cash Lisa after 40 to AJ Bell DODL app and I’m really happy so far, another 3 years of paying in then will let compounding do the rest for 10 years. Not a huge amount of choices in funds etc but global tracker does the job each month.