Latest news with #LifetimeISA
The Independent
16-07-2025
- Business
- The Independent
Lifetime ISA vs personal pension: Which is better for higher retirement income?
SPONSORED BY TRADING 212 The Independent Money channel is brought to you by Trading 212. If you don't qualify for an employer pension, or you're looking for a way to supplement yours, both a Lifetime ISA and a personal pension, such as a SIPP (a self-invested personal pension), can be effective retirement planning tools. They have a lot in common: they're both tax -efficient, they hold a similar range of investments - Lifetime ISAs are a little more restricted - and most compellingly, contributions to either are topped up by 25 per cent, albeit in different ways. At first glance, it may seem that you could pay the same amount into one or the other and they would deliver an equal income in retirement. This isn't the case. Let's look at which could provide a higher income for you, and why. Which allows you to save more? A Lifetime ISA allows you to pay in up to £4,000 each year from the age of 18 until you turn 50. If you paid in the maximum each year, the total would be £128,000. You must open one before age 40. Contributions count towards your overall ISA allowance. Pensions usually allow you to pay in a lot more, and you can pay in for longer. Various limits apply in different circumstances, but the standard annual allowance is £60,000. Which offers a better 'bonus'? When you make a contribution into a Lifetime ISA, the government adds a 25 per cent bonus. So, if you pay in £800, the government bonus will be £200. You can read more on LISAs here. Pension contributions don't benefit from a bonus, but they are eligible for tax relief, which has a similar effect. If you make a contribution of £800 into a personal pension, your pension provider claims and adds £200 from HMRC (the equivalent of basic-rate income tax). If you're a higher-rate or additional-rate taxpayer, you'll be entitled to more tax relief. This won't be claimed by your pension provider but you can claim it back through your self-assessment. Which can be accessed first? You can freely access the wealth within your Lifetime ISA after the age of 60. Before that age, you can access it in two scenarios: You're buying your first home, at a value of no more than £450,000 You pay a 25 per cent withdrawal charge. Note that the 25 per cent withdrawal charge does not equal the bonus, but actually exceeds it: If you pay in £800, you'll receive a bonus of £200, giving you a total of £1,000 If you now withdraw £1,000, you'll pay a penalty of £250 (25 per cent of the total) You'll have £750 remaining, leaving you £50 worse off. Pensions usually cannot be accessed before the age of 55 (rising to 57 in April 2028) unless you have a serious health condition. It can be a more complex process. How is the income from each taxed? Here is, perhaps, a Lifetime ISA's most appealing characteristic: money withdrawn from them isn't considered income, so it won't be taxed. After the age of 60, you can take as much cash as you like, until it runs out, and you won't pay a penny of it to HMRC. Pension income can be taxed in various ways. A more full explainer is here but to simplify, you can usually take 25 per cent of your pension tax-free, while the other 75 per cent is taxed as income as and when you take it. You might therefore pay tax at 20, 40 or 45 per cent, depending on your other income. Which will provide a higher income? As you've probably gathered, this is a question of the trade-off between the tax relief (or bonuses) you'll receive while saving and the tax you'll pay (or not) when withdrawing. A personal pension is usually the better choice for higher-rate and additional-rate taxpayers. The tax relief on your pension contributions, at 40 or 45 per cent, more than offsets the tax you'll pay on your pension income, particularly if you move into a lower tax bracket after you retire. For a basic-rate taxpayer, the reverse is true. Let's look at an example: If you saved up £100,000 over your working life, whether you used a Lifetime ISA or personal pension, you would end up with £125,000 (we'll ignore investment growth to keep things simple). With a Lifetime ISA, you could withdraw this amount over any period, after the age of 60, without paying tax. You'd be able to take the full £125,000. With a personal pension, only 25 per cent (£31,250) would be tax-free. The remaining £93,750 would be taxed as it's withdrawn. If you withdrew it over several years, remaining a basic-rate taxpayer throughout, the total tax would be £18,750. Of your £125,000, you'd only get back £106,250. While this gives a clear advantage to the Lifetime ISA, there are other factors to consider: With an annual limit of £4,000 on contributions, a Lifetime Isa alone may not allow you to save enough as you need for retirement Since you can't access your Lifetime Isa penalty-free until 60, you may have to wait longer to retire You can only pay in until you turn 50, while you might want an option you can pay into after this. Given all the benefits and drawbacks, you may decide that both products have a role in your retirement plan - especially given there may be changes to the Lifetime ISA ahead.
Metro
09-07-2025
- Business
- Metro
Martin Lewis has urgent advice for everyone born between 1986 and 2007
Martin Lewis has issued new savings advice for everyone born between 1986 and 2007. In the latest issue of his podcast, the Money Saving Expert (MSE) founder urged those aged between 18 and 39 to take advantage of a scheme to help them get on the property ladder — and to do it sooner rather than later. He advised anyone within this age group who wants to buy a house to put £1 in a Lifetime ISA (LISA) account 'ASAP', both to reap the rewards it offers and ensure they don't miss out due to a cut-off. The government-backed scheme gives first time buyers 25% extra on savings of up to £4,000 a year in the tax-free account. While the bonus – which adds up to a maximum of £1,000 for each year you have it, and can be spent on properties priced up to £450,000 – is only payable after a year, you don't have to put the full amount in straight away to receive it. Savers can also put money into a LISA until they turn 50, but need to make their first payment before reaching 40 years old to receive bonuses. You can access completely fee-free mortgage advice with London & Country (L&C) Mortgages, a partner of Metro. Customers benefit from: – Award winning service from the UK's leading mortgage broker – Expert advisors on hand 7 days a week – Access to 1000s of mortgage deals from across the market Unlike many mortgage brokers, L&C won't charge you a fee for their advice. Find out how much you could borrow online Mortgage service provided by London & Country Mortgages (L&C), which is authorised and regulated by the Financial Conduct Authority (registered number: 143002). The FCA does not regulate most Buy to Let mortgages. Your home or property may be repossessed if you do not keep up repayments on your mortgage. Martin explains: 'Just putting a pound in now even if you're not ready to use it means when you are ready to use it the clock will have been ticking. 'You would have had it open a year. So you're perfectly eligible to suddenly go and get the bonus when you want. 'In fact, parents, on your kid's 18th birthday, why not get them a LISA and put a pound in it?' Although you'll pay a 6.25% penalty for withdrawing the money in your LISA rather than using it to pay for a home purchase, if you open yours with just £1 you only risk losing 6p. And if that's the worst that happens, the financial guru thinks it's 'worth it,' to give yourself the option should you want it further down the line. Big brands like HSBC, Natwest and Halifax all offer Lifetime ISA accounts, each with their own interest rates but all qualifying for the government bonus. Despite endorsing the scheme though, Martin has been a strident campaigner for the £450,000 limit (which has remained the same since) to be raised, most recently as part of a new government report on LISA reform. He told the Treasury Select Committee: 'We have a succession of young people who are saving in the vehicle they have been encouraged to save in by the state, who are then trying to use their savings to buy a first-time property, but due to house price inflation their property has just tripped above the £450,000 level. More Trending 'Then not only do they not get the £1,000 a year bonus they were intended to get – which I understand is legitimate as a threshold – but they are fined by the state effectively 6.25% of their own money in order to withdraw that money to get the cash out.' In response to Martin's comments, the Committee agreed the LISA may not be 'working as intended', highlighting HMRC stats which reveal that £213 million in withdrawal charges was taken from more than 286,000 savers in the six tax years to 2023-24 — an average of over £3,000 per person. View More » The report made recommendations to Chancellor Rachel Reeves ahead of plans to 'imminently' update the system, with a Treasury spokesperson claiming it would now 'review its findings and respond in due course.' Do you have a story to share? Get in touch by emailing MetroLifestyleTeam@ MORE: How the €1 European house scheme actually works MORE: Middlesbrough is the unexpected best-paid city in the UK — how does where you live compare? MORE: 'I spent a fortune building dream home but now the council won't let me live in it'
The Independent
08-07-2025
- Business
- The Independent
Why Martin Lewis wants parents to put £1 in a Lifetime ISA
Martin Lewis is advising parents to open a Lifetime ISA for their children with just £1 once they turn 18. This initial deposit starts the one-year period required before the funds can be used for a first-time property purchase. The state adds a 25 per cent bonus on contributions, up to £4,000 annually, for those buying their first home. Opening the account early with £1 ensures that any subsequent contributions, up to the annual limit, can immediately receive the bonus without further delay. Watch the video in full above.
The Independent
08-07-2025
- Business
- The Independent
Martin Lewis urges parents to do one key thing as children turn 18
has advised parents to open a Lifetime ISA with just £1 for their children once they turn 18, to help get 'the clock ticking' for them to buy a house. He explained to This Morning on Tuesday (8 July) that the state adds a 25 per cent bonus towards a first-time property purchase, and you can contribute up to £4,000 a year. 'You put four grand in, you get about a grand a year, but you can only use it if it's been open for a year,' he said. Lewis added that by putting in just £1, you can later add £4,000 and receive the bonus immediately, without having to wait. 'So you may as well have the Lifetime ISA open,' he added.
BBC News
05-07-2025
- Business
- BBC News
Lifetime ISAs: Why they divide opinion
Liam Roberts had only just finished university, but he was already thinking ahead to how to buy a home and fund 2018, he was looking for a way to build up some savings, and so he chose a Lifetime ISA (LISA).Anyone under 40 can open a LISA to either help save towards retirement or buy a first home. Savers can put in up to £4,000 a year and the government will top it up by 25%."It is an excellent product," says Liam, now aged 28. "The government paid £4,000 towards my first home." He bought a two-bedroom home in Manchester in 2022, using the cash savings and government bonus to help pay the mortgage LISA was automatically closed, and so, after getting his job as an asset manager, he opened another time it was a stocks and shares LISA, for even longer-term retirement plans. Again, he puts in the maximum £4,000 a year, and gets the 25% government bonus. He can start making withdrawals, without a penalty, from the age of 60."They are designed for long-term planning," he says. In a job that involves reading financial products, he knew what he was signing up for, and that it would work well for his everyone has the same knowledge, though, or the same opportunity to make the most of the benefits of the LISA. There remains a limited number of providers, with High Street banks and building societies not among them. The influential Treasury Committee of MPs has said the LISA is ripe for reform, as the commitment of taxpayer funds is of you have got in touch via Your Voice, Your BBC to express your dismay about the product's the heart of these concerns are two issues:the penalty involved in withdrawing money early, which means people face losing 6.25% of their own savingsthe cut-off which means LISA savings can only be used when purchasing a property up to a value of £450,000 - a threshold that has been unchanged since LISAs were launched in 2017, despite rising house prices particularly in south-east EnglandThose who have been in touch have hit out at the penalty, particularly after being caught out by the £450,000 limit. 'Upset and annoyed' One of those was Holly from London. The 28-year-old says she lost around £750 when she bought her home in 2023."I was very upset because I'd been using it to save for a house since I was 19 and I did actually use the money to buy my first home as the scheme intended."She says at 19 the chances of buying a house over £450,000 felt very remote but then her career was going well and she met her future husband."What annoys me is that I bought the home with my now husband and my share is well under £450,000 but of course that wasn't taken into account," she says. Daniel Slavin set up a LISA in his 20s. At the time, as a single person, he understood why the thresholds were there and thought it was a good fast-forward a few years, and now married, when it came to buying a house, he and his wife Lucy fell foul of the £450,000 they were still able to buy without needing to use their LISA, Lucy says it put them in a difficult financial position."It is incredibly frustrating knowing that if we need to withdraw the money our only option is to lose part of our savings," says the 32-year-old, who works as a research specialist for a charity."I can understand losing the bonus if you withdraw early but the penalties are awful."Daniel, 33, who's a doctor, has since stopped paying into his LISA."The current government wants us to buy houses and increase growth and I don't think they should penalise us for doing the right thing and saving money," he need to take inflation into account, he says. "They should change the rules." Barrier to new savers Commentators and campaigners are keen to see Lewis, founder of MoneySavingExpert, says the £450,000 threshold is "unjust, unfair and the rules need changing"."If a LISA is used to buy a property above the threshold, there should be no fine, they should get back at least what they put in," he said."And this flaw doesn't just hurt those with LISAs. It puts off many young people, especially from lower income backgrounds, who tend to be more risk averse, from opening LISAs in the first place."Helen Morrissey, head of retirement analysis at investment platform Hargreaves Lansdown, says that LISAs had proven popular among the self-employed, who can save for retirement despite not having access to a workplace she called for the penalty for early withdrawal to be eased, and the age limit for opening a LISA to be extended. Savings habit LISAs were launched under the then-Conservative government in April then, 6% of eligible adults have opened one, with about 1.3 million accounts still open, according to the most recent are clearly divided among those account holders about how well they government says the LISA is a source of celebration but, in time, it could well address some of their concerns."Lifetime ISAs aim to encourage younger people to develop the habit of saving for the longer term, helping them to purchase their first home or build a nest egg for when they are older," a Treasury spokesperson said."We welcome the committee's report and will now review its findings and respond in due course." Additional reporting by Alex Emery, Kris Bramwell and Shanaz Musafer
