Share this page:
Stay connected:
Welcome to the Citywire Money Forums, where members share investment ideas and discuss everything to do with their money.

You'll need to log in or set up an account to start new discussions or reply to existing ones. See you inside!

Notification

Icon
Error

Lifetime ISAs
Lily Bridgwood
Posted: 13 November 2017 11:25:09(UTC)
#1

Joined: 13/11/2017(UTC)
Posts: 5

Thanks: 6 times
Are they worth it, or would my money be better off in a pension?
William Dickinson
Posted: 19 November 2017 10:13:31(UTC)
#2

Joined: 10/12/2009(UTC)
Posts: 9

Was thanked: 2 time(s) in 2 post(s)
In very simple terms an ISA will give you instant access to 100% your funds at any age. That is to say you can cash in all of your ISA's in one go with no tax liabilities. With an ISA you pay tax on all the money that goes INTO the ISA but no tax on the growth (profit) you make on the ISA when you take money OUT.

Pensions are more complicated and have restrictions regarding your age and the amount you can draw-down in any given tax year. For basic rate tax payers you do not pay tax on the money you put INTO a pension. However, apart from the 25% lump-sum which you can take tax-free, you will pay tax on all profits and the original capital when you take money OUT. The rules are a little more complicated for higher rate taxpayers.

The main "up-side" to a pension versus an ISA for basic rate taxpayers is that the government will rebate 20% tax for all sums you contribute to the pension directly to your pension fund.If you are a higher rate (40/50%) tax payer you need to recover anything over 20% through your tax return. In essence you get an instant "profit" on contributions into a pension fund in the form of the tax rebate.

If you are on the "edge" of paying 40% tax it would be financially prudent put money that will push you into the 40% tax band into a pension to avoid paying tax on it and get your 20% rebate at the same time with the remaining 20% recovered when you file your tax return.

I use AJ BELL to manage my ISA's and SIPP's on-line. I have a mix of the two. ISA's for holiday savings and SIPP for long-term savings.I have found their fees reasonable and their service and support excellent over the 20 years I have been using them. You have an almost unlimited access to stocks and managed funds.
1 user thanked William Dickinson for this post.
Lily Bridgwood on 21/11/2017(UTC)
DJLW
Posted: 19 November 2017 10:33:27(UTC)
#3

Joined: 06/01/2014(UTC)
Posts: 18

Thanks: 16 times
Was thanked: 19 time(s) in 11 post(s)
And Lifetime ISAs are somewhere in the middle between Pensions and ISAs - they provide a bit of extra govt incentive on the funds invested but limit your ability to withdraw funds (without penalty) to a purpose of first time house purchase or retirement.

I am currently discussing with my daughter whether we recycle some of her existing ISA funds into a Lifetime ISA.
1 user thanked DJLW for this post.
Lily Bridgwood on 21/11/2017(UTC)
Micawber
Posted: 19 November 2017 11:51:06(UTC)
#4

Joined: 27/01/2013(UTC)
Posts: 1,712

Thanks: 734 times
Was thanked: 2470 time(s) in 953 post(s)
A subject also of key interest to my offspring, all of whom have ISAs. I have advised them to hold off Lifetime ISA for several instinctive reasons. They are a new creation of Osborne's who is no longer in office. There are uncertainties over providers. They have restrictions and penalties. I've suggested my offspring wait and see for a while, pending stories appearing in the media about the Lifetime ISAs' operation, and problems, in practice. This might mean foregoing "free money" in favour of the freedom to get your cash when you want or need it, without penalty.
6 users thanked Micawber for this post.
markus on 19/11/2017(UTC), DJLW on 19/11/2017(UTC), Alan Selwood on 19/11/2017(UTC), Tim D on 20/11/2017(UTC), Lily Bridgwood on 21/11/2017(UTC), Martina on 21/11/2017(UTC)
DJLW
Posted: 19 November 2017 17:21:56(UTC)
#5

Joined: 06/01/2014(UTC)
Posts: 18

Thanks: 16 times
Was thanked: 19 time(s) in 11 post(s)
Micawber;53403 wrote:
A subject also of key interest to my offspring, all of whom have ISAs. I have advised them to hold off Lifetime ISA for several instinctive reasons. They are a new creation of Osborne's who is no longer in office. There are uncertainties over providers. They have restrictions and penalties. I've suggested my offspring wait and see for a while, pending stories appearing in the media about the Lifetime ISAs' operation, and problems, in practice. This might mean foregoing "free money" in favour of the freedom to get your cash when you want or need it, without penalty.


A trade off indeed!

As an alternative to Pensions I would agree with your rationale - far too much time for things to change for the sake of an extra 20% per year on £4000K. (40 years given my daughter is 20).

Hopefully though she will at some stage want to and be able to buy a property - maybe in the next 5 -10 years.

Against this backdrop I think the offer of free money becomes a little more attractive. The downside is measurable in that it is the return of the 20% plus a little more if I remember based on how the arithmetic works.

I had not considered the operational / provider risk that you mention given that as far as I could see HL offered the product (I am advocating their solidity and trustworthiness here rather than their pricing structure albeit on ITs they are OK).

Current plan is to ponder until March and leap into action or not ahead of the end of the tax year - given that the limit is 4K any migration from ISA to Lifetime ISA would be gradual.
1 user thanked DJLW for this post.
Lily Bridgwood on 21/11/2017(UTC)
Alan Selwood
Posted: 19 November 2017 23:56:09(UTC)
#7

Joined: 17/12/2011(UTC)
Posts: 2,445

Thanks: 465 times
Was thanked: 3703 time(s) in 1419 post(s)
Although you might argue that 'every little helps', the gain from putting £4000 into a Lifetime ISA is very puny compared with the retirement income that will be needed later in life compared with most people's ability to save enough from salary to make that retirement comfortable.

So I am with micawber on this one - I would hold off if I was in that position.
1 user thanked Alan Selwood for this post.
Lily Bridgwood on 21/11/2017(UTC)
Tom Mozy
Posted: 20 November 2017 13:56:25(UTC)
#8

Joined: 09/07/2013(UTC)
Posts: 80

Thanks: 2 times
Was thanked: 107 time(s) in 42 post(s)
I have maxed my LISA this year from funds held in my ISA, so the contributions were not at the expense of SIPP or Employer Pension contributions.

I think people under estimate the value of the 25% starting contribution and the zero tax payable at the end when the LISA is wrapped into your standard ISA at 60. The compounding that an extra 25% has will be beneficial to me for sure.

I currently have the vast majority of my later life savings in a ISA and SIPP about 50/50, but I view the LISA as little kicker.

The rules could change - the most obv change would to be roll the LISA into SIPP accounts.

I very much doubt they will move the age (60) much further out as the trend has been to relax pension rules and the SIPP is 57/58 now anyway.

I like it as a part of later life saving.

In any event its £1000 extra fundsmith units to compound for a further 30 years ;)

2 users thanked Tom Mozy for this post.
Hank Elvis Dobbs (texan) on 20/11/2017(UTC), Lily Bridgwood on 21/11/2017(UTC)
Lily Bridgwood
Posted: 21 November 2017 16:04:17(UTC)
#6

Joined: 13/11/2017(UTC)
Posts: 5

Thanks: 6 times
Micawber;53403 wrote:
A subject also of key interest to my offspring, all of whom have ISAs. I have advised them to hold off Lifetime ISA for several instinctive reasons. They are a new creation of Osborne's who is no longer in office. There are uncertainties over providers. They have restrictions and penalties. I've suggested my offspring wait and see for a while, pending stories appearing in the media about the Lifetime ISAs' operation, and problems, in practice. This might mean foregoing "free money" in favour of the freedom to get your cash when you want or need it, without penalty.



Seems to be the general consensus from everything I have been reading and others in the industry I've asked - think I'll be holding off until there's a little more clarity around it - and perhaps some backing from some of the bigger players in the sector. I was looking for some sites to compare what was out there, and came across OFF3R.com - even that shows the limited choice of Lifetime ISAs available. Perhaps when the banks get involved I'll take another look at it.

Any thoughts/advice on an alternative - Pension or Stocks & Shares ISA?
Tom Mozy
Posted: 21 November 2017 16:50:29(UTC)
#9

Joined: 09/07/2013(UTC)
Posts: 80

Thanks: 2 times
Was thanked: 107 time(s) in 42 post(s)
Lily - your looknig for alternative to ISA and Pensions yet or dismissing the alternative?

The running of my LISA by HL has been flawless.
Lily Bridgwood
Posted: 21 November 2017 16:58:03(UTC)
#10

Joined: 13/11/2017(UTC)
Posts: 5

Thanks: 6 times
Tom Mozy;53480 wrote:
Lily - your looknig for alternative to ISA and Pensions yet or dismissing the alternative?

The running of my LISA by HL has been flawless.


I'm just concerned due to the newness of the LISA.
+ Reply to discussion

Markets

Other markets