Investing in SIPP vs LISA

nick5990 · 2 December 2019 at 4:12PM

I'm currently investing £4k / year into a LISA with HargreavesL.
I'm also putting in typically at least £100 / month into a SIPP (also with HL).
[I also have a Workplace pension of about £1k, S&S ISA of ~£3k (investing typically £100 / month), P2P of £3.8k, and regular savings into a bank of £350 / month]

I'm currently intending not to use the LISA for a house purchase, and let money accumulate over the years until I can withdraw at 60 years+. I'm planning to retire around 68, and aiming for annual income of £23k minimum from investments (pensions + investments + P2P)

I'm unsure what to do for how I invest in my LISA & SIPP given the above info given I don't want to increase the total / year for LISA and SIPP past £5.2k / year;
1) Keep contribution amounts for LISA & SIPP the same
2) Put more into LISA
3) Put more into SIPP

Some advice and thoughts from people would be good ta!

masonic · 2 December 2019 at 6:45PM

What are the terms of your workplace pension? Can you put more into that, and is there employer matching / salary sacrifice benefits to be obtained?

How to best balance out your various retirement pots will depend on how you intend to take an income in retirement. For example, up to your personal allowance, drawing down from your pensions would be the most tax efficient option, above that the LISA has a slight edge. The S&S ISA is ideal if you want to retire or supplement your income before 60. Much depends on your plans and personal circumstances.

nick5990 · 2 December 2019 at 10:50PM

What are the terms of your workplace pension?
From me - Percentage of salary per month deducted post Ni & Income tax

Can you put more into that?
Yes. Minimum amount is 5%. Currently I contribute 8%.

Is there employer matching / salary sacrifice benefits to be obtained?
No salary sacrifice benefit currently. Employer contributes 3% of salary.

Hence total contibutions into workplace pension are currently 13%. I'm 33 years old.

Much depends on your plans and personal circumstances.
Other than what I've mentioned already, no other plans currently.

Tom99 · 3 December 2019 at 6:34AM

nick5990 wrote: »

I'm currently investing £4k / year into a LISA with HargreavesL.
I'm also putting in typically at least £100 / month into a SIPP (also with HL).
[I also have a Workplace pension of about £1k, S&S ISA of ~£3k (investing typically £100 / month), P2P of £3.8k, and regular savings into a bank of £350 / month]

I'm currently intending not to use the LISA for a house purchase, and let money accumulate over the years until I can withdraw at 60 years+. I'm planning to retire around 68, and aiming for annual income of £23k minimum from investments (pensions + investments + P2P)

I'm unsure what to do for how I invest in my LISA & SIPP given the above info given I don't want to increase the total / year for LISA and SIPP past £5.2k / year;
1) Keep contribution amounts for LISA & SIPP the same
2) Put more into LISA
3) Put more into SIPP

Some advice and thoughts from people would be good ta!

I thought £4,000pa was the max you could put into a LISA anyway?
If you are a basic rate taxpayer the I think the LISA is preferable to the SIPP as you get a 25% uplift on both when putting money in but the LISA is tax free when you take it out at age 60 whereas only 25% of what comes out of the SIPP is tax free.
If you are a higher rate taxpayer now but you expect to be a basic rate taxpayer when you retire the the SIPP may be better as you get a 66.7% uplift of the net contribution going in rather than 25%.
LISA - net £4,000 in = £5000 investment = £5000 net out
SIPP Basic Rate payer - net £4000 in = £5000 = £4250 net out
SIPP Higher Rate payer - net £4,000 in = £6667 investment = £5,667 net out

masonic · 3 December 2019 at 8:15AM

Tom99 wrote: »

If you are a basic rate taxpayer the I think the LISA is preferable to the SIPP as you get a 25% uplift on both when putting money in but the LISA is tax free when you take it out at age 60 whereas only 25% of what comes out of the SIPP is tax free.

In practice it's more than 25% of which is tax free because of the personal allowance. If someone under 40 today wants to retire at 68, they could draw out 25% plus their personal allowance for (probably) a couple of years before paying any tax, and after their state pension kicks in, they'd still be able to draw out another ~£4k tax free per year. Agree the LISA is better for the slice of retirement income that sits above that.

masonic · 3 December 2019 at 8:24AM

nick5990 wrote: »

What are the terms of your workplace pension?
From me - Percentage of salary per month deducted post Ni & Income tax

Can you put more into that?
Yes. Minimum amount is 5%. Currently I contribute 8%.

Is there employer matching / salary sacrifice benefits to be obtained?
No salary sacrifice benefit currently. Employer contributes 3% of salary.

Hence total contibutions into workplace pension are currently 13%. I'm 33 years old.

Much depends on your plans and personal circumstances.
Other than what I've mentioned already, no other plans currently.

In that case I think you are doing the right thing. Your pension should be large enough at retirement that you'd be in a position to pay tax on some of it and can instead use the LISA to avoid doing so. Assuming you are a BR taxpayer.

noobinvestor · 3 December 2019 at 9:24AM

You won't be able to touch any money in a SIPP until you're 55 and you already have a workplace pension.

I would max out a LISA and then put the rest into a S&S ISA.

Investing in SIPP vs LISA

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