Lifetime ISA for retirement

Frequently asked Lifetime ISA questions

• What's the Lifetime ISA retirement age?

  There is no set retirement age. You’ll normally pay a 25% penalty on any money you take out before age 60 though (if it’s not put towards buying your first home) so you could get back less than you put in. Withdrawals after age 60 can be taken completely penalty free.
• Can you retire with a Lifetime ISA?

  Yes. If you’re using a Lifetime ISA as a way to save for retirement, make sure you don’t take money out until age 60, unless you really need to. If you do take money out early, you’ll usually be charged an early exit penalty of 25%. This means you could get back less than you put in. Any money in a pension will be accessible at age 55 (rising to 57 in 2028).
• Can you transfer a pension into a Lifetime ISA?

  No, you aren’t able to transfer money directly from a pension into a Lifetime ISA. Any money in a pension isn’t usually accessible until age 55 (rising to 57 in 2028).
• Can you use a Lifetime ISA for a house and retirement?

  Yes. You can use a LISA to save for both your first house purchase and for later life. Any money not used to buy your first house can stay in your LISA for later. Even if you’re already a homeowner you can continue to make contributions and get the government bonus right up until age 50 to boost your retirement savings.
• Should I use a Lifetime ISA if I’m self-employed?

  If you’re self-employed and pay a higher rate of tax a pension is likely to be more tax efficient.

  If you’re self-employed and a basic rate taxpayer, you should consider saving into a LISA. This is because you won’t have the benefit of any employer pension contributions to help boost your retirement savings.

  The 25% LISA bonus you get from the government, is equal to what you’d receive as basic-rate tax relief in a pension on a personal contribution of up to £5,000 (for example, you pay in £4,000 into a pension and the government tops this up with £1,000 in basic rate tax relief). However, if you take money out of a LISA from age 60, it’s tax-free. Whereas if you take benefits from a pension (you’ll usually need to be at least 55, or 57 from 2028, to do this) normally only up to 25% of the amount taken will be tax-free with the rest taxed as income.

  Unlike a pension, money in a LISA can be withdrawn – but this will normally incur the 25% government withdrawal charge, so you could get back less than you put in. Anything you withdraw could affect what your retirement plans will look like. A LISA isn’t suitable as the first port of call for emergency savings. But for those with a reasonable level of emergency cash already saved, it could be considered for long-term investing, with access to the money still being possible as a last resort.
• Does a Lifetime ISA affect State Pension?

  No, a LISA won’t change your State Pension entitlement. However it could affect your entitlement to some means-tested benefits.
• What happens to my Lifetime ISA when I die?

  Money in a LISA will form part of your estate when you die so inheritance tax rules will apply. There’s normally no inheritance tax to pay if the value of your estate is below the current £325,000 threshold or you leave everything above the threshold to your spouse, civil partner, a charity or a community amateur sports club. Where there is inheritance tax to pay, the rate is usually 40%.

  An ISA, including a LISA, could be inherited by a surviving spouse or civil partner in the form of an increased ISA allowance for them. This is known as the Additional Permitted Subscription (APS). Find out more about APS.

  In contrast, any money in a pension won’t usually form part of your estate so no inheritance tax is payable. If you die under age 75 your loved ones can normally receive any money left in a pension completely tax free. If you die after 75, the money will be taxed as your beneficiaries’ income. You might consider a pension over a LISA if you’re hoping to pass on most of your retirement savings.
• Can I have a Lifetime ISA and a workplace pension?

  Yes, but if you qualify for a workplace pension it’s likely you’ll be better off making pension contributions over LISA contributions at least up until a certain amount. This is because, provided you’re eligible, your employer is legally required to contribute at least 3% of your salary, and some employers will match whatever you pay in up until a certain limit.

  The most any employer will contribute varies, so it’s worth checking this with them. Once your employer is contributing the maximum into your pension, then the most tax-efficient account (LISA or a pension) for you to pay extra retirement savings into will depend on your personal circumstances.