Being self-employed I am all too aware that I don’t have a workplace pension. In my twenties I never thought about a pension and was never offered one at work. Retiring seemed like ages away to me! Now, however, I am 34, full-time self-employed and I’m seriously panicking about my future! This is why after lots of research I have finally opened a Lifetime ISA for retirement, otherwise known as a LISA. In this blog post I will explain my understanding of the Moneybox cash Lifetime ISA for retirement and its benefits.
I had been looking into pensions, cash savings and regular cash ISAs. I’d been researching to see what the options were for retirement savings as a self-employed person. In fact, I didn’t even know a LISA existed until I started researching pensions. There aren’t many places that offer it, so it’s not advertised as heavily as the mainstream bank options are, such as investment or cash ISAs. Anyone I’ve spoken to about it doesn’t know about it either!
It was quite a surprise to find out about it and for me it seems like a great option. If you start it from the minimum age of 18 and invest until age 50 then you will benefit from £33,000 bonus cash!
Why a cash LISA for retirement is great for self-employed basic rate tax payers
The Lifetime ISA for retirement is a great option for those of us who are self-employed. Its main benefit is a government top up of 25% on savings!
That’s a whopper!
Only a maximum of £4000 can be saved in the ISA each year, but if this maximum is saved then it will be topped up by £1000!
I opened mine with £100 yesterday and can already see I will get a £25 bonus at the end of next month!
That’s a much better rate than any cash ISA or cash savings, and even investment ISAs. Plus on top of the 25% government bonus I also get 1.4% interest.
Another bonus is that these retirement withdrawals are tax free, unlike a pension which is taxed after a certain amount is withdrawn.
ISA savings are always tax free to withdraw.
The Lifetime ISA may not be for everyone, but I have decided to open mine and start transferring at least £100 per month in for now. I’d love to reach the maximum of £4000 per year, but this is not feasible at the moment with young children and my husband’s wage unknown as he embarks on self-employment too.
Until now I have been saving into a savings builder with Natwest each month as my retirement fund. My plan is to have several different types of savings from cash savings to ISAs so as I don’t put all my eggs in one basket.
I also opened an investment ISA yesterday with Scottish Friendly that has a 10 year guarantee so I can withdraw everything I’ve invested on my 10 year anniversary without penalty if the stocks and shares have made my investment go down. Being new to investing and these types of ISAs I really wanted to test the waters with a low risk version like this so I don’t lose anything. Investing really does scare me, but I plan to spread my retirement fund and savings over a few different types of accounts to lower the risk.
I may even start an actual pension too at some point, but I’m not sure yet. I think it would be sensible to max out the LISA first if I can ever afford to.
At the moment I’m not paying more in as the money is tied into the account. If any withdrawals are made before I reach age 60 then I will lose the 25% government bonus. There is also a charge which means I’d lose just under £7 per £100 I put in. So it’s a long term investment with the LISA for retirement. The money is not readily accessible for spending.
How the cash LISA for retirement works and its benefits
- It can only be opened between ages 18-39
- Payments can be made each tax year until age 50
- The money can be withdrawn without penalty from age 60
- A maximum of £4000 can be saved each tax year until age 50
- A 25% government bonus will be added to the savings
- A 1.4% AER variable interest rate will also be added (the highest rate on the market for this type of ISA at the time of writing)
- If you have it from age 18-50 and save the maximum then you will benefit from £33000 of bonus cash
- The 25% government bonus will only be added for savings added each year until age 50
- After age 50 the savings will continue to benefit from the interest rate (currently 1.4% at Moneybox)
- You can still open other ISAs too. The £4000 allowance is part of the overall ISA allowance of £20,000 (tax year 2019-2020), so if you max this then you can only save £16,000 across the rest of your ISAs for this tax year. You can also open a cash ISA, investment ISA and innovative financial ISA each year.
- Beneficial for self-employed basic tax payers who don’t have a workplace pension scheme
- If you are desperate then you can access the money before age 60, but you will lose the benefit and bonus. If you really need the cash then this could be an advantage as you cannot access any funds saved in a pension. It does also have its disadvantages as you’ll see below.
The disadvantages of the LISA
- Unlike a pension, if you are declared bankrupt then the LISA funds will be accessed to clear your debts as they count as an asset
- You cannot access the money before you are 60 without a penalty and losing the cash bonus. With pensions you can currently start accessing them at age 55.
- LISA savings will affect eligibility for benefits as they are counted as savings and therefore an asset. Pensions are not. If you are ever in financial difficulty then you will be made to use your LISA before being able to apply for benefits. This means you could lose your LISA and end up with even less money than you saved due to the penalty for making an early withdrawal.
I am obviously no expert and have done my own research to choose what I think is right for me as a self-employed person. I am sharing my opinion of the Moneybox cash LISA for retirement with you today to make you aware of this option if you are also self-employed and wondering what your options for retirement savings are. I hope it helps. You’ll find a lot more information at the Moneybox website, Money Saving Expert and the government website to learn more about LISAs:
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