The Chancellor, George Osborne, announced the introduction of a new ISA, known as the LISA, in his budget which has lead many commentators to ponder the question ‘will LISA replace your pension?
What is a LISA?
It is a new ISA that from April 2017, will be available to those under 40, with a bonus of 25% being offered by the government to encourage saving for, either the purchase of your first home and/or your retirement. The bonus is limited to the first £4,000 of contributions each year, with the overall ISA allowance of £20,000.
Is it right to compare LISAs with pensions?
We all need to save money whether that’s for an emergency fund, or large capital events, such as, a house deposit, wedding arrangements and even our retirement.
However we would normally say that it is unwise to save money into a new LISA at the expense of giving up membership of a pension scheme.
Where your employer contributes or matches the contributions you make on your behalf, it is usually better to take advantage of this valuable perk, and still get tax relief on top!
For those who are eligible and can afford to contribute to both a LISA and a pension scheme then you should do so.
If your savings budget is limited, a combination of pension, to ensure you get your employer’s contribution, and also investing any excess savings up to £4,000 into a LISA, is good financial planning.
How do LISAs and pensions compare?
*subject to certain conditions
If you want to learn more about the differences between LISAs and pensions and how you can take advantage of all of the allowances available to you, then please contact your Cullen Wealth consultant.