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Money, Save It, Work

LISA savings | Saving regularly is essential when it comes to closing the gender pensions gap

Did you know that only 30% of women are confident they’ll be able to afford to retire? If you’re one of them, then perhaps your LISA savings could provide the solution. I personally save within a Nutmeg LISA and this is an integral part of my retirement plan. Let’s look at how a LISA could benefit other women that are looking to prepare for retirement.

An important note…

Before we begin, I just wanted to make clear that I’m not a Financial Advisor, I’m just sharing my personal views within this article. It’s important that you do your own research, discover what could work for you and make a decision based on your unique set of circumstances.

Now that we have cleared that up, let’s dig in!

What is a Lifetime ISA (LISA)?

A LISA (also known as a Lifetime ISA account) is a way of saving for your first home, or retirement. In 2018-19, people within the UK opened 223,000 LISAs and paid in an average of £2,709. However, according to research from Opinium, for Hargreaves Lansdown, only one in five women are completely confident they know what a LISA is.

A LISA account has the following features:

  • You have to be aged 18 to 39 to open one
  • You can save up to £4,000 a year in a LISA. This can go towards your first home, or retirement. The state adds a cash bonus of up to £1,000 a year on top
  • Once open, you can keep saving and receive an annual government top up until you’re 50
  • The maximum bonus is £33,000 if you open it at 18 and max it out until you hit 50
  • You can choose between a cash LISA, or stocks and shares LISA. I’ve opted for a stocks and shares Nutmeg LISA. Whichever you choose, any interest or investment gains, are tax-free
  • If you already have an ISA, you may be able to transfer that money into your Lifetime ISA
  • If you cash out before you’re 60, then there is a government withdrawal charge of 25%. The withdrawal charge is because these savings plans are designed to help you during retirement
  • When you reach 60, all withdrawals are tax-free. You can take as much, or as little cash as you like, whenever you want
  • If you don’t want to take out any money at 60, then you can leave it there. You won’t be able to pay more money in, or get a government bonus, but you could get more interest if it’s a cash LISA, or more investment growth for a stocks and shares LISA
  • If you’re not sure if you need a LISA and even if you think a pension is better for you right now, it’s still worth opening one with a small amount of money before your 40th birthday, so you’ve got it there in case your situation changes

Why should women consider a Lifetime ISA (LISA)?

A Lifetime ISA could be a more tax-efficient and flexible option for women. This is because the gender pay gap still exists and women are less likely than men to be additional-rate taxpayers.

It’s common for women returning to the workforce after having children to become self-employed, so they can have more flexibility. The self-employed don’t benefit from any employer pension contributions, so if you’re a basic-rate taxpayer, then saving in a LISA could be a smart choice.

Lifetime ISA savings are also more flexible than pensions. Normally, money can only be withdrawn to buy a first home (up to the value of £450,000), or from age 60. However, the cash can be accessed at other times, although you are charged 25% on the amount withdrawn.

Nathan Long, a senior analyst at Hargreaves Lansdown, said: “In the race to close the gender pensions gap, we risk a myopic focus on pensions above all else. In fact, for women aged 18-39, the LISA may end up being a far more effective way to save for retirement.

“Men are more likely than women to know all about the LISA, but even then they tend to think of it as a way to buy their first home rather than a solution for retirement income. However, the LISA is a brilliant tool to have in the retirement toolbox – particularly for women.”

Where can I open a Lifetime ISA (LISA)?

There are various LISA accounts available on the highstreet. I personally have my retirement savings tucked away in a Nutmeg stocks and shares LISA, but there are lots of other providers out there. It is worth noting that a shares Lifetime ISA is likely to fluctuate more than a cash Lifetime ISA, but the rewards may also be greater if the stock market performs well.

When are pensions better?

If you’re a higher-rate taxpayer, a pension is more tax efficient than a LISA.

Regardless of your income level, if you have a workplace pension, the first thing to do is maximise any employer contributions. You’ll get a contribution under the auto-enrolment rules. However, you should check whether you paying in extra means that your company will match your contributions. Definitely don’t leave the potential for extra employer contributions on the table, as it’s free cash.

If you go on paid maternity leave, a workplace pension normally works out better than a LISA. This is because of the way the contributions are calculated. The employer’s contributions are based on the pre-maternity leave salary, whereas the mother’s contributions are based on the maternity leave pay. This means you can enjoy the full contribution from your boss, while you pay in less. If you are expecting a baby, read about how to budget for maternity leave. I’ve also written a guide, explaining how to save money on maternity leave.

A pension is also handy if you’ve already put the maximum £4,000 into your LISA for the tax year and you want to squirrel away some more for retirement.

Retirement is like a savings jigsaw… to be worked on throughout your lifetime

I personally think that retirement planning is a bit of a financial jigsaw, with lots of moving parts. My LISA is just part of my personal strategy. I also have a workplace pension and I have consolidated all of my previous workplace pensions with PensionBee, so I have them all in one place and I’m able to make additional contributions.

If a pension is currently the best option for you, but you’re aged under 40, then you should still consider opening a LISA. It’s important not to put all of your financial eggs in one basket. Aside from that, I don’t think that many 60 year olds would turn their noses up at an additional pile of LISA savings!

Start saving in a Lifetime ISA (LISA) today

I have decided to save within my Nutmeg stocks and shares LISA. I’m also paying the highest possible contribution into my workplace pension and I have consolidated all of my old workplace pensions into one place with PensionBee. You need to determine the best option for you and work out if LISA savings would benefit you. But one thing’s for sure: you should be making provisions for your retirement now.

Hacks: closing the gender pensions gap with LISA savings

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