L.I.S.A vs Pensions
One of George Osborne’s parting gifts in his last budget was the introduction of a new type of ISA from April 2017. This new ISA would help 1st time buyers save for their house (wasn’t that the “Help to Buy” ISA?) and also enable you to save for your long term future and get additional money from the government (wasn’t that what pensions already did?). Well here you have it - the new Lifetime ISA or “LISA”.
The pensions industry held its breath at the beginning of April as the then Chancellor was rumoured to be looking to revolutionise the pension industry with plans to introduce a ‘pension style’ ISA that would simplify how people save for their retirement. After some monumental lobbying he stopped short of changing everything, but did introduce the Lifetime ISA available from April 2017. This has 2 target markets;
First Time Buyers: This new ISA is aimed at the younger generations, those aged 18-40 looking to buy their first property will be able to save £4,000 annually and receive a government bonus of 25% when coming to buy the property. Great, no getting around the fact that this is a very good place to save for your deposit, which will replace the current Help to Buy ISA from next year.
Long Term Savers: The LISA will allow you to save £4,000 annually and get a government bonus of 25%, so long as you don’t claim the benefits before age 60 (unless buying your first home). Oh and if you do claim this before age 60 you incur a 5% penalty too, and also any growth on the bonus part the government paid. Hang on this doesn’t sound as good now….
Most of the working population are already (or shortly will be) in a workplace pension to which they and their Employer must contribute. They will receive tax relief on contributions, and for those employees with access to Salary Exchange (Salary Sacrifice), the tax benefits are even greater!
(The above assumes Basic Rate Income Tax, member contributions of £100 (5% of earnings), 5% per annum growth over the 10 years and an employer contribution of 3%)
The table shows that workplace pensions still offer greater value for money for the long term saver. You can also pay more into your pension and for a longer time. Pensions can currently be accessed from age 55 and there is no penalty on claiming your benefits from a workplace pension.
Everyone’s circumstances will be different, but to summarise: First Time Buyers - LISA is a no-brainer, get saving from next year. Long Term Savers - stick to your workplace pension scheme.
To discuss further or to arrange a face to face meeting please contact us.