When it comes to saving for retirement, Britons face a crucial decision: should they opt for a Lifetime ISA (LISA) or a traditional personal pension? Financial experts are divided on which option offers the best long-term benefits.
The Lifetime ISA Advantage
The LISA, introduced in 2017, offers a compelling 25% government bonus on contributions up to £4,000 annually. This means savers could receive up to £1,000 in free money each year from the government. The account also allows tax-free withdrawals after age 60 or for first-time home purchases.
Pension Benefits
Personal pensions, however, come with their own advantages. Contributions receive tax relief at the saver's marginal rate, potentially offering higher earners greater benefits. Pension funds also benefit from being outside inheritance tax calculations.
Key Considerations
- Accessibility: LISAs allow earlier access for home purchases
- Tax treatment: Pensions may be more beneficial for higher-rate taxpayers
- Employer contributions: Only pensions can receive employer top-ups
- Withdrawal rules: Pensions offer more flexible access from age 55
Financial adviser Sarah Coles notes: "The best choice depends entirely on your circumstances. Younger savers buying their first home might prefer a LISA, while those focused purely on retirement may benefit more from pension tax relief."
With pension rules set for potential changes in future budgets, experts recommend reviewing your retirement strategy regularly to ensure it still meets your needs.
