How should you save for your retirement?
An influential Government minister believes that workplace pensions are a better option than the new Lifetime ISA, and we agree!
Lifetime ISAs were announced in the Budget earlier this year and will be available from April 2017 to anyone under the age of 40. Savings will attract a Government ‘bonus’ of £1 for every £4 saved and the money accumulated can be used to help meet the cost the deposit for first time buyers or retirement.
When money is withdrawn, providing it is for a deposit on a first home or for retirement after the age of 60, no tax is payable.
Lifetime ISA concerns
However, financial experts are concerned that some people may choose to save for their retirement in a Lifetime ISA rather than a workplace pension, a decision which could leave them significantly worse off in later life.
This concern was echoed by Baroness Altmann, the pensions minister, when she spoke to the Work and Pensions Select Committee, saying: “Let me be clear. A pension is a pension, an ISA, whatever you call it, is not a pension. It does concern me if people are somehow trying to suggest that the Lifetime ISA is a pension. It’s not.”
She continued: “The Lifetime ISA makes sense for somebody who is trying to save for their first home but not someone to opt out of a workplace pension where the most powerful benefit of the workplace pension is the employer contribution.”
We agree.
If your objective is to save for retirement and you have access to a workplace pension, into which your employer will contribute, the better option is to use that and not a Lifetime ISA.
Using a Lifetime ISA instead of a workplace pension will simply mean you miss out on valuable employer contributions, resulting in a lower income in retirement.
Even if you are using the Lifetime ISA to help save for a deposit on your first home, we would suggest you join your workplace pension at the same time.
Lower earners and the self-employed
However, if you don’t have access to a workplace pension, perhaps because you earn less than the amount required to qualify, or you are self-employed, the decision is more complex.
Both the Lifetime ISA and a pension receive a Government ‘top-up’ but the ages you can access the accumulated pot are different as is the way you will be taxed.
We are here to help
If you are confused about the best way to save for your retirement, we are here to help.
Call Bev or Sarah on 0115 933 8433 or email info@investmentsense.co.uk
