Pension questions

[notnowthanks]

I have £20k in a LISA account and £7k in an aviva old workplace pension. I'm 45 and aware that this is nowhere near enough for retirement. I'm self employed and due to get full state pension (assuming it exists when I reach that age!). What's the best way to boost my pension - should I prioritise the LISA over the aviva? Or vice versa? And how much should I be putting in my pension each month given no employer contributions.

Personally I'd prioritise the pension as you'll receive tax relief and pay less NI contributions. I'm not self employed but I think this is correct. How much depends on how much you can afford. If possible put in the max of £40k per annum.

I would do pension. You may be a higher rate tax payer, so you may be able to get more tax relief on pension contribution than LISA bonus. You may be able to take 25% tax free, then some at 0% due to personal tax allowance and then some taxable.

This video may help: m.youtube.com/watch?v=lfsIQ7swO0E

I would also look at pension providers as fees and fund choices vary. If you are a Ltd company rather than sole trader then you may be able to save corporation tax.

Thank you for the replies. I should have said I earn about £20-£25k and I'm a sole trader.

Given your situation I would suggest a new SIPP but make sure you put less than £10k in before opening a third pension pot that you again put less than £10k in.

This way your 3 pots will be fully accessible when you hit age 55 tax-free under the small pots rules without triggering the MPAA. You can always start a fourth pot for any more contributions beyond the 3 small pots.

Putting £2k into a LISA would get topped up to £2.5k and not be accessible until age 60.

Putting £2k into a SIPP would get topped up to £2.5k but should also save national insurance.

After the 3 small pots (£30k) your fourth pot will have 25% Tax-Free and the rest taxable, money in a LISA would not be taxable but you won’t be able to put anything in a LISA after age 50.

@DemonSpawn

Could you explain this pots thing please and what's triggering mpaa.

Can one open up multiple sipps?

You can access up to three small pensions of up to £10,000 in value each.
You can read more about that here (this guide is fairly easy to read, rather than linking you to more technical things): www.litrg.org.uk/tax-guides/pensioners/how-do-i-cash-my-small-pension

Yes you can have multiple SIPPs. I would try to keep the number small though so it is manageable. Most people just need a pension and an ISA, and some may need a LISA.

Triggering MPAA is about accessing a money purchase pension. When you access a pension (not a Defined Benefit one) and you take from the taxable part of that, then you trigger the Money Purchase Annual Allowance (MPAA). Once that has been triggered it means you cannot pay more than £4k gross into a pension in a tax year. www.moneyhelper.org.uk/en/pensions-and-retirement/tax-and-pensions/money-purchase-annual-allowance-mpaa