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Home Finance Why a LISA may be a nicer retirement option

Why a LISA may be a nicer retirement option

by uma


  • HL calculations show someone paying £1,000 per year into a Lifetime ISA from the age of 18 could accumulate almost £104,000 by the time they hit 50.
  • Investment growth of 5% a year between the ages of 50-60 could give a LISA worth £169,000.
  • Someone contributing £4,000 per year could end up with £415,000 by the age of 50 and £676,000 by the age of 60.
  • In 2022 HL clients benefited from £61m of LISA bonus payments.
  • LISAs can act as a great alternative or addition to pensions for retirement planning.
  • The 25% bonus and the ability to access the funds in a LISA if needed could be particularly attractive to groups like the self-employed.

Helen Morrissey, head of retirement analysis at Hargreaves Lansdown:

“If you are aged under 40 then a LISA could play a major part in your retirement planning. The 25% bonus is a significant uplift to your savings, which over time and added to long-term investment growth could see you accumulate a tidy sum. In 2022 HL clients received over £61m in LISA bonuses which will have boosted their long-term savings.

Our calculations show that someone paying £1,000 per year into a LISA from the age of 18 could have a pot of £104,000 by the time they hit 50. Even though they can’t contribute after the age of 50, compound investment growth over the next ten years could see them with around £169,000. Contribute more, say £4,000 per year then you could have as much as £415,000 by the age of 50 and over £675,000 by the time you hit 60. There is no tax to pay on interest, income or capital gains from cash or investments held in a LISA. You could put this money to work as a bridging income between the age of 60 and state pension age, or leave your pension invested until much later and draw down your LISA. As more of us approach retirement with mortgages still to pay, your LISA could be used to pay it off and give you a bit more income to play with in retirement.

LISAs can also be an attractive alternative to pensions for groups such as the self-employed who are not covered by auto-enrolment. The 25% bonus boosts their retirement saving in a similar way to basic rate tax relief and for those who don’t benefit from an employer contribution then it’s an option worth considering. Another important factor is the ability to access the money in a LISA in times of stress. Pensions cannot be accessed until age 55 whereas you can access the funds in a LISA albeit subject to a 25% penalty. In times where money might be tight the ability to do this can add much needed flexibility though we would like to see the level of the penalty permanently reduced to 20%.”