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Original poster

Pension advice for teen

10 replies

Singinginshower · 26/08/2020 23:25

My DS doesn't earn enough for auto enrolment in his employer's scheme. He can ask to join it, but they won't make contributions. I'm wondering whether it's better to start paying into a Lisa. Any advice welcomed.

OP posts:

nannynick · 26/08/2020 23:38

If he opted in to the pension he would get tax relief on his contribution. That is the same as the Lifetime ISA bonus.
However the LISA can be used towards a first home purchase in the future. If left until age 60 then it is not taxable income at that point, whereas a workplace pension when drawn on is part of taxable income.
So doing the LISA is a good idea and I suspect it will be used for a first home purchase at a future point which is not a bad long term investment.

nannynick · 26/08/2020 23:40

He can have a Stocks & Shares LISA if he is unlikely to buy a home in the next 5 years. Within that he could have a low cost global fund which all things going well will increase in value.

Original poster

Singinginshower · 27/08/2020 00:03

Thank you both, really useful information.

OP posts:

RoseTintedAtuin · 27/08/2020 00:11

I would say a LISA is better given his time of life. At least that way he pays tax at the lower rate and it’s tax free on withdrawal whereas who knows what tax will be when he is retirement age

BarbaraofSeville · 27/08/2020 05:03

If he doesn't earn enough to pay into a pension would that also mean that he doesn't earn enough to pay tax, so no tax advantage to a pension?

That would be another reason to choose a LISA instead.

nannynick · 27/08/2020 07:22

He would be earning under £10k to not be automatically enrolled in workplace pension, so he would not be paying Income Tax on his earnings. However that is not relevant to pension tax relief as he could pay all of his salary to pension and get tax relief on that contribution even though he does not pay Income Tax on his salary. This is because he does not pay Income Tax due to having a personal tax allowance.

BarbaraofSeville · 27/08/2020 07:57

However that is not relevant to pension tax relief as he could pay all of his salary to pension and get tax relief on that contribution even though he does not pay Income Tax on his salary

I don't understand (genuinely). What tax is he being relieved of if he doesn't pay tax? Does he still get his pension contribution bumped up by 'tax' even though he earns less than the personal tax allowance? I didn't realise that.

nannynick · 27/08/2020 08:00

Yes that is right. He would still get tax relief on pension contribution.

Even someone who has no earned income at all, could pay in £2880 to a pension and get tax relief at basic rate (so it becomes £3600). Children can also do that, could have a pension from birth.

Tax relief is weird.

19lottie82 · 27/08/2020 09:43

I run a small business and when our 18 yo apprentice started our accountant told me she couldn’t enrol onto the work pension scheme until she was 21? This may vary with pension provider though.

nannynick · 27/08/2020 10:03

That would be correct for auto-enrolment but someone younger than 21 can have the right to opt-in. It's just that they are not automatically put in to the work scheme.

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