Lifetime ISA (LISA)

LISA or pension?

Given the flexibility options available with pensions, is it likely that people will choose one over the alternative of an ISA in future?

Pensions have the advantage of receiving tax relief on the contributions being paid in, whereas any cash withdrawn from an ISA is tax free.

However the Lifetime ISA now provides an attractive option:

• the 25% bonus added by the Government is the equivalent to the investor receiving 20% tax relief on investments of up to £4,000 a year (if the ISA is used after the age of 60 or for the purchase of a first home);
• the benefits are wholly tax-free when withdrawn, whereas 75% of a pension fund is taxable, meaning an investor under the age of 40 may choose to make the first £4,000 of their retirement savings each year into a Lifetime ISA, particularly if they are a basic rate taxpayer; and
• it offers additional flexibility if the investor does require access to the funds before the age of 55 (albeit with the loss of the Government bonus).