When it comes to saving for retirement, UK savers often face a dilemma: should they opt for a Lifetime ISA (LISA) or a personal pension? Both offer tax advantages, but the right choice depends on your financial goals and circumstances.
What is a Lifetime ISA?
A Lifetime ISA allows you to save up to £4,000 per year, with the government adding a 25% bonus on top. The money can be used either to buy your first home or withdrawn tax-free after age 60. However, early withdrawals for other purposes come with a hefty penalty.
What is a Personal Pension?
A personal pension, such as a SIPP (Self-Invested Personal Pension), lets you contribute up to £60,000 annually (or 100% of earnings, whichever is lower) with tax relief. The funds are locked away until at least age 55 (rising to 57 in 2028).
Key Differences
- Accessibility: LISAs allow penalty-free withdrawals for first-time homebuyers, while pensions are strictly for retirement.
- Tax Relief: Pensions offer tax relief at your marginal rate, whereas LISAs provide a flat 25% bonus.
- Contribution Limits: Pensions have much higher annual limits compared to LISAs.
Which One Should You Choose?
If you're a first-time buyer or a basic-rate taxpayer, a LISA might be more attractive. However, higher-rate taxpayers or those looking to maximise retirement savings may benefit more from a pension.
Financial experts recommend considering both options if possible, as they can complement each other in a diversified retirement strategy.
