Confusion over Lisa v Pension debate

Hondaguy · 13 July 2017 at 7:42PM

I have a matched contribution based pension with my employer but it's only the statutory minimum. I want to invest more and when the LISA was announced I thought this would be a great way to have a secondary nest egg on top of my pension.

Furthermore, to this I've always wanted to invest in funds so I thought this would be a great way to start as the 25% bonus would potentially offset any losses in the first year of investment if I picked some bad ones. I've already set the LISA up with Hargreaves.

The only problem is when I have googled information I have read many articles saying 'pension v Lisa what's best' implying its one or the other.

Excuse me if this is a stupid question but am I right in saying there is no reason why I can't have a stocks and shares LISA and continue with my pension scheme with my employer?

NOTE: I am well aware of the fees if withdrawing early, the risk of loss with stocks and shares, and that the government won't give 25% from age 50 onwards.

kidmugsy · 13 July 2017 at 8:14PM

Hondaguy wrote: »

am I right in saying there is no reason why I can't have a stocks and shares LISA and continue with my pension scheme with my employer?

Correct. Moreover you could withdraw money from the LISA at 60 and contribute as much of it as is then allowed into a pension, thus exploiting the tax advantages of each. Hurray!

ricky_v · 13 July 2017 at 9:36PM

Assuming you're getting NI relief as well as tax relief from your employer's pension scheme then that's a 32% relief (if basic rate), plus currently you can withdraw 25% of the pot tax free and anything thereafter is subject to the normal income tax, where the first £11,500 (currently) a year is tax free.

LISA (if used for a pension) gives a 25% contribution on taxed income, but is tax free when you draw down.

A LISA is only good for people who earn below the tax free allowance, or self employed paying basic rate of tax, or PAYE employees who cannot salary sacrefice any more of their wages/at the pension pay in limits, or if you haven't bought your first property yet.

Moreover you could withdraw money from the LISA at 60 and contribute as much of it as is then allowed into a pension, thus exploiting the tax advantages of each. Hurray!

My understanding is that you're not exploiting the tax advantages of a pension by using LISA money to pay into it, as LISA money is already taxed?

number_monkey · 14 July 2017 at 12:30AM

Correct. Moreover you could withdraw money from the LISA at 60 and contribute as much of it as is then allowed into a pension, thus exploiting the tax advantages of each. Hurray!

kidmugsy - doesn't this rely on the government not changing the tax treatment of pensions over the next 20+ years (which frankly seems very unlikely)?

bigadaj · 14 July 2017 at 5:57AM

number_monkey wrote: »

kidmugsy - doesn't this rely on the government not changing the tax treatment of pensions over the next 20+ years (which frankly seems very unlikely)?

Well you can only go on what you know and the current situation, politicians can and will do anything in the future.

Little has changed on the tax treatment of pensions over the last twenty years, from an accumulation perspective at least. There's always talk, particularly of higher rate relief being withdrawn, but that has been discussed for decades as well.

Confusion over Lisa v Pension debate

Comments

Categories

Get our FREE Weekly email full of deals & guides - and it’s spam-free