Lifetime ISAs guide

Tom99 wrote: »

If you expect to be a basic rate taxpayer when you draw down the pension then the pension will give you a better return than the LISA but if you expect to still be a higher rate taxpayer then the LISA is a better option.

But Jon isn't comparing a LISA with paying into a private pension from net pay, so the basis on which the workplace pension is funded needs to be taken into account, as this can affect the comparison....

Thanks for the replies, they've been really helpful.

The link to the arithmetic on the post above was particularly helpful. This indicates putting into a pension works out better for the majority, but would be even more so for me as I'm in the higher rate of tax?

I can't see me getting into a £50000+ annual pension drawdown situation so the higher rate of tax shouldn't come into play in later life for me, so for me investing in a pension just seems like a better option than a LISA.

jdlak wrote: »

My parents recently divorced and my mother gave her 50% share of the property that she had once owned to myself and my sibling. Therefore, I 'own' 25% of a property. I wasn't asked to sign anything, which I find quite strange. I have never seen any declaration of trusts or any document which details the legality of my ownership (i.e. whether I have legal interest or beneficial interest, etc).

This is information you would need to find out in order to understand whether you really have a legal interest in the property, or whether you've just been told that. It seems like something it would be a good idea to establish beyond your eligibility for a LISA withdrawal.

Am I still classed as a first time buyer, for the purposes of the LISA? I don't want to sink a significant amount of money into the LISA and then find out I am ineligible and face the 25% penalty for withdraw.

If you really have been gifted a 25% share of your parents' property then you wouldn't be eligible. It would be sensible to assume this is the case until you can confirm who really owns your parents' property.

kiwi_fruit wrote: »

I'm thinking of getting LISA for retirement savings. I'm 32, so it would be for 28 years. Keep reading that leaving savings in cash for this amount of time is very unwise( inflation etc) and anybody wanting to save very long term should go for Stock and Shares as it's "guaranteed" to outperform cash. But surely investments are never guaranteed and always a gamble so a loss is a possibility? Does the fact that's it's long-term makes it any less of a gamble? I'm hugely risk averse and the thought of losing savings fills me with dread, how much of a gamble would this long term S&S LISA be?

It's not guaranteed. It's just extremely likely. Cash held over long periods of time is almost guaranteed to lose money in real terms, whereas a global investment portfolio has only a negligible chance of losing money. In the last 100 years or so, there has never been a 30 year period where staying in cash would have been given a better outcome than investing globally in a mixture of S&S and bonds - and most of that time, cash interest rates were higher than today.

You should check that a LISA makes sense for you vs the pension options you have available. Things like employer matching and salary sacrifice can tip the balance strongly in favour of using a pension.

Any another thing is I've have stumbled upon articles saying that government could abolish it as it's not performing like expected etc. If they do- what are the chances they'd discontinue 25% bonus AND not let you withdraw early?
THANK YOU for any input in advance

It is unlikely LISAs will be abolished, and with the demise of the HTB ISA, they are likely to become more popular. There are lots of rumours like this that seem to circulate year after year - like the abolishing of higher rate tax relief on pensions.

The 25% bonus on LISAs is paid 1-2 months after each deposit into the LISA, therefore even if this was stopped at some point in the future, you could simply stop paying into the account and switch back to contributing to a pension. If they did allow penalty free access at that point, that would be the icing on the cake, but taking away bonus money already paid is about as inconceivable as taking away tax relief people have already been granted for contributing to their pensions.

kiwi_fruit wrote: »

masonic, thanks very much for your sensible and reassuring response.
I'm self-employed, don't have a company pension, so LISA theoretically does make a lot of sense for me.

It would make sense for some of your retirement savings - remembering that there are certain disadvantages of LISAs, such as they are included in means testing and cannot be disregarded if bankruptcy proceedings were ever brought against you.

For income taken in retirement above your pension's tax free lump sum and above your personal allowance, a LISA funded from income taxed at the basic rate will be more tax efficient than income from your pension.

My other half says the only gamble here is if interest rates were to go up considerably and not being able to move LISA money to a better rate, especially in the last ten years when the bonus rates stops.

This wouldn't be a gamble at all, since we've already established it would make no sense to choose a cash LISA vs a S&S LISA.

S&S LISAs do not pay any interest on cash balances, and all providers give sufficient investment choice for you to reduce your investment risk in the years leading up to you accessing the money, depending on your plans for retirement and your LISA's role in those plans. Your returns will therefore come exclusively from the investments you hold within the LISA, and the main factors to consider about the provider is their charges and the investments they have on offer. While charges could be hiked at some point, they are unlikely to become decoupled with charges for S&S ISAs and general investment accounts, so should remain competitive. Once you reach 60 years of age, you'd be free to transfer the money to a combination of cash/S&S ISA, withdraw some of it and place it in a standard savings account, etc. What makes sense at that time will heavily depend on whether you are already retired, intend to retire at that time, or plan to work for some time more before retiring. It will be quite some time between then and when the state pension kicks in.

There is perhaps some further misunderstanding from your other half as there is no 'bonus rate', as such, on LISAs. You get a one-off 25% bonus paid on new money paid into the account. You will receive that bonus precisely once on every contribution you make up to the age of 50, whereupon you will be unable to pay anything further into the account. While it is true money paid in just before you turn 50 will attract a higher bonus rate since you'll get the same 25% even though you only need to keep the money in the account for 10 years vs the ~28 years you'll be locking up money paid in today, it's probably better to consider it as being equivalent to 'cashback' rather than a 'bonus rate' if it must be thought of in terms of savings products.