Author Topic: S&S Lifetime ISA or contribute more pension?  (Read 1864 times)

Poozay

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S&S Lifetime ISA or contribute more pension?
« on: February 28, 2019, 03:38:06 PM »
My Mustachian sisters and brothers, your thoughts please...

Max out a S&S LISA TO 4k a year for gov top up OR contribute more to my employer salary sacrifice pension?

I know about the withdrawl age and it doesnt bother me as I think it would help to stagger future income for FIRE i.e drawing down from Vanguard S&S ISA until employer pension at 55, then LISA at 60 then the (probably non-existent then) state pension etc

I wont max out pension either way as basic rate taxpayer, however i am contributing the max to where my employer is matching them at the highest they will go to ( me-8% employer-12%)

So is it worth opening a LISA for the next couple of decades and maxing out for gov top up? Of course in a S&S LISA?
Also anyone have any suggestions in playforms for LISA with lowest fees?


Kookaburra Risotto

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Re: S&S Lifetime ISA or contribute more pension?
« Reply #1 on: March 01, 2019, 04:55:25 AM »
Quote
I know about the withdrawl age and it doesnt bother me as I think it would help to stagger future income for FIRE i.e drawing down from Vanguard S&S ISA until employer pension at 55, then LISA at 60 then the (probably non-existent then) state pension etc

This is exactly my plan. 

I'm nowhere near an expert (I'm 38 and only just getting started on this road) but my understanding is that for a basic rate tax payer there's not much difference between extra pension contributions and paying into LISA. I am preferentially paying into LISA as my employment is insecure (though I have a great workplace pension, I can't pay into it if I'm not employed), so my LISA is my back-up vehicle so that I'm still benefiting from market increases within a tax-free wrapper.

Platform-wise, I've gone with Nutmeg. I was considering Hargreaves & Lansdown but their fees are very high*.

I feel like this probably wasn't very helpful but I would definitely recommend opening a LISA, even with a nominal amount. Even if you're not close to 40 yet, chances are they won't be around forever.

*Edit: I just read elsewhere on the forum that HL fees are NOT actually that high.
« Last Edit: March 01, 2019, 05:10:48 AM by Kookaburra Risotto »

AnswerIs42

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Re: S&S Lifetime ISA or contribute more pension?
« Reply #2 on: March 01, 2019, 05:40:03 AM »
For a basic rate taxpayer with access to a sal-sac scheme, a £1000 gross pension contribution will cost you £680 (20% tax + 12% NI). Assuming you'll be taking the money out at basic rate in retirement too, that's effectively 15% tax (20%, but a quarter of it is tax free lump sum) so you'll get £850 out at the end. That's effectively a 25% uplift.

The LISA gives you a 25% uplift too. So effectively it's the same (the government perhaps did this deliberately as a way of levelling the playing field?)
 
I would perhaps slightly favour the LISA in this case because you won't have to worry about things like the lifetime allowance or future tax rate changes. But it's a wash, really.

PhilB

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Re: S&S Lifetime ISA or contribute more pension?
« Reply #3 on: March 02, 2019, 12:12:25 AM »
Does your employer share any of their NI savings from the sal sac with you?  If they do then that tips the balance in favour of the pension.

vand

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Re: S&S Lifetime ISA or contribute more pension?
« Reply #4 on: March 02, 2019, 02:37:43 AM »
I've done quite a bit of thinking about this lately. In a way it's good that we have some great tax-shielding options here in the UK.
Current thinking is to prioritize tax efficiency over flexibility, so priority is:

Pension (sal sacrifice)
SIPP (I'm too old to qualify for a L-ISA)
SS-ISA
Cash

Aiming to max out the 40k limit between the Pension & SIPP, don't know if I'll be able to completely fill up the ISA allowance.

Long term plan is to run hard to at about £250-300k in retirement accounts, which will probably take me at least another 5 years, as I figure that is how much you can get out tax-free, whilst building the more flexible ISA account as and when I can.  We will be taking on some major mortgage debt in the next couple of years too as we plan to move trade up to a bigger house, so some sizeable cash savings will need to figure in our plan too. Our current flat is fully owned and will be turned into a rental to offset the new mortgage.

frugledoc

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Re: S&S Lifetime ISA or contribute more pension?
« Reply #5 on: March 02, 2019, 04:25:22 AM »
I've done quite a bit of thinking about this lately. In a way it's good that we have some great tax-shielding options here in the UK.
Current thinking is to prioritize tax efficiency over flexibility, so priority is:

Pension (sal sacrifice)
SIPP (I'm too old to qualify for a L-ISA)
SS-ISA
Cash

Aiming to max out the 40k limit between the Pension & SIPP, don't know if I'll be able to completely fill up the ISA allowance.

Long term plan is to run hard to at about £250-300k in retirement accounts, which will probably take me at least another 5 years, as I figure that is how much you can get out tax-free, whilst building the more flexible ISA account as and when I can.  We will be taking on some major mortgage debt in the next couple of years too as we plan to move trade up to a bigger house, so some sizeable cash savings will need to figure in our plan too. Our current flat is fully owned and will be turned into a rental to offset the new mortgage.

Is your salary sacrifice pension defined benefit or defined contribution?

DB makes it more complicated when it comes to calculating your left over allowance to put into SIPP.

Also, beware if you earn > 110k threshold income

vand

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Re: S&S Lifetime ISA or contribute more pension?
« Reply #6 on: March 03, 2019, 04:45:08 AM »
I've done quite a bit of thinking about this lately. In a way it's good that we have some great tax-shielding options here in the UK.
Current thinking is to prioritize tax efficiency over flexibility, so priority is:

Pension (sal sacrifice)
SIPP (I'm too old to qualify for a L-ISA)
SS-ISA
Cash

Aiming to max out the 40k limit between the Pension & SIPP, don't know if I'll be able to completely fill up the ISA allowance.

Long term plan is to run hard to at about £250-300k in retirement accounts, which will probably take me at least another 5 years, as I figure that is how much you can get out tax-free, whilst building the more flexible ISA account as and when I can.  We will be taking on some major mortgage debt in the next couple of years too as we plan to move trade up to a bigger house, so some sizeable cash savings will need to figure in our plan too. Our current flat is fully owned and will be turned into a rental to offset the new mortgage.

Is your salary sacrifice pension defined benefit or defined contribution?

DB makes it more complicated when it comes to calculating your left over allowance to put into SIPP.

Also, beware if you earn > 110k threshold income

DC for me, so no problem. Ideally Putting 40k into the work pension would probably be the most effective in terms of tax saving, but I need the SIPP for some flexibity as my income can be highly variable from month to month between my various side jobs and and there's no guarantee that I'll be able to sustain the same income I have been in the last couple of years.

Poozay

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Re: S&S Lifetime ISA or contribute more pension?
« Reply #7 on: March 03, 2019, 11:53:25 AM »
Does your employer share any of their NI savings from the sal sac with you?  If they do then that tips the balance in favour of the pension.

Not a penny! :-/

 

Wow, a phone plan for fifteen bucks!