Should you have a pension or LISA?

Isobel Lawrance 22nd Dec 2021 One Comment

Reading Time: 3 minutes

Wondering whether to get a pension or a LISA?

We recently collaborated with leading pension provider PensionBee to bring you six podcasts all about pensions. These podcasts cover the basics as well as looking in depth into different types of pensions.

In this episode of the How To Be A Money Magpie podcast, founder Jasmine Birtles is joined by Clare Barret, Personal Finance Editor at the Financial Times and financial advisor David Braithwaite to look at private pensions and their step-sister, LISAs (Lifetime ISAs). They discuss the pros and cons of both, which is better and whether you should consider having one of each.

Listen to the podcast below, or read the written summary!

How much can you put into a LISA?
What’s the difference between a LISA and a pension?
Is there a restriction on the type of property you can buy with a LISA?
What if you’re self-employed?
Is there much confusion about LISAs?
Do you think LISAs will change?
Why are pensions so complicated?

How much can you put into a LISA?

David says:

Up to £4,000 a year
The government gives a bonus of 25%
This counts toward the £20,000 a year limit, so you can put the other £16,000 into other ISAs
They are good for those looking to get onto the property ladder
Pensions and LISAs have very slight differences in restrictions

What’s the difference between a LISA and a pension?

Clare says:

You can only open a LISA before the age of 40, and can only put into it until you are 50
It can give you some options for later life
There is ‘free money’ attached to each
The money you put into a LISA results in a 25% top up from the government
You have to actively invest this if you want
With a pension, your employer has to match what you put in and you also get tax relief on your pension

Is there a restriction on the type of property you can buy with a LISA?

Clare says:

It doesn’t have to be a new build
There are restrictions in terms of not being allowed to rent the property out
The hardest part is getting your money out again
If you take your money out for any other reason or before you reach 60 when access the money, you will lose the 25% uplift

What if you’re self-employed?

David says:

It depends on each individual
You may wish to pay into a pension, a LISA or both
It’s important to understand the tax relief of pensions and the benefits of both
They both have their place, but it is important to understand both and it’s an important decision

Is there much confusion about LISAs?

Clare says:

To a degree, yes
People are amazed when they realise they can get a 25% increase for free
They are also interested to learn there are many more types of ISAs such as cash ISAs and stocks and shares ISAs
People are most often confused about where and how to start
I think they are great for the self-employed and basic rate taxpayers
It’s also important to realise you have it for the long term and can’t access it until you are 60

Do you think LISAs will change?

Clare says:

They are likely to be tinkered with by the government
The take up wasn’t as high as they’d hoped
Many people cannot afford to invest much money into them
They do boost demand for property

David says:

I’ve seen lots of changes, such as to the Junior ISAs and Child Trust Funds
It’s important to understand what could change and why and how to protect your money as much as possible
It’s a good thing, however pensions are there too

Why are pensions so complicated?

David says:

The biggest complaint we get is that pension statements are difficult to understand
They are complicated and it makes them boring and uninteresting
People become disengaged from their money
People need to become interested in personal finance matters, which should start at school
Most people only find out the basics when they have to or when it’s too late

Clare says:

The Financial Times has just started up FT FLIC, an educational guide and we are lobbying to get financial education in schools
It is a financial literacy and inclusion campaign
You can find out more here: https://www.ft.com/ft-seasonal-appeal