Lifetime ISA vs self employed private pension

[Friedbanana]

I’ve been trying to figure out if I’d be better off opening a life time ISA in preparation for retirement or starting a private pension. I’m 30, self employed sole trader and currently have no pension but I am an exceptional saver as my income basically doubled over the last year but I am still stuck in my frugal ways 😅

I am overpaying the max allowed on my mortgage and have about £32k in an instant cash ISA (I’ve maxed out my £20k this year but I believe I can take out money and put it back in) which I think has an interest rate of 1.20% which means I’m prob losing money due to inflation.

I wanted to contribute say £10k into a pension before 5th April as I read about tax relief (I’ve not done my precise numbers but I think my income will be about £55k/60k this year so I would be able the extra 20% tax relief meaning I wouldn’t have to pay 40% tax on my income over £50k )

However I have looked into private pensions and am finding it very overwhelming. My whole family is completely financially illiterate (my mum will only have a state pension so I’m prepared to try and support her at some point!) so I have no one to ask for advice. I did have a chat with a financial advisor but tbh found it very confusing and he said for a pension he would take 10% of my contributions for the first year which seemed high. I’m genuinely not a stupid person but for some reason with finance/the economy my brain turns into mush. I do not seem to understand anything at all and it really stresses me out!

So my question is, should I continue to confuse and overwhelm myself with researching pension plans in order to claim the tax relief or should I just open a Lifetime ISA? I understand With Lifetime ISAs The limit is £4000 a year and that comes out of your £20000 allowance. So would I be able to open one now (even though I have been contributing to my IS in this tax year, take £4000 out my instant cash ISA and put it into my Lifetime ISA?)

Thank you soo soo much for any advice anyone is willing to give. I do really appreciate it!!!

Why don't you just open a SIPP on Vanguard? https://www.vanguardinvestor.co.uk/what-we-offer/personal-pension/self-employed
It is explained there.

It is better to use S&S ISA than cash ISA especially when you are young and you have already got enough cash for emergency. Vanguard also does S&S ISA and you can contribute monthly into it. I pay an additional £1100 for pension and £550 to S&S ISA monthly. I am not self employed, though. So, it is pretty much straightforward.

I opened a pension with nest and all tax relief is added to any money you pay in.

I think they are pretty good, good to dip your toe in so to speak!

I'm also self employed. Definitely open a pension, and add after you've maxed 20k isa allowance.?

You'd likely be better off with a pension as you will get your 40% tax relief and it's effectively 20% in a LISA. The flipside is that you will be taxed on drawing a pension but with tax free lump sum, personal allowance etc the rate will be <20% (unless you try to draw all in one go)

I've invested £30,000 in a LISA and really regret it. There are a lot of rules around when you can claim it, it gets taken into account for means tested benefits etc if you become disabled in future, it doesn't "grow" as much as a SIPP.

Martin Lewis MSE has a section on LISA on his website. He says it's better to go for a sipp.

Im not sure you can withdraw from a cash isa and put it in somewhere else.
You might be able to do an isa transfer but maybe has to be whole amount?

A sipp probably is better at your age as per pp os you need benefits lisa is counted as savings but pension isnt.

Also woth the tax it is likely better.

Firstly transfer your cash isa to a better rate. I have a LISA, opened it at 39 before the cut off but there's not much in it. A private pension would be better.

I have a LISA and just have it set so that all the spending on my other accounts are rounded up, it adds up relatively fast and you don't really notice it.

I would open a SiPP as your main form of saving for pension and then a LISA to take advantage of the govt bonus for a nice lump sum when you get access to it.

When I was in a similar position I was lucky enough to find a financial adviser who was a friend-of-a-friend and he kindly didn't take a commission from my contributions just charged a modest set fee for helping me with the forms but it would be possible to do this yourself wothout a Financial Advisor. This is what I found out:

All the big pension providers (names yoi have probavly heard of like Sun Alliance, scottish widows, royal london etc etc) will have a simple Private Pension product as well as their SIPP scheme. The SIPP has higher charges because it gives you an enormous amount of flexibility to trade assets to maximise your growth rate as the market fluctuates. If you aren't going to be scouring the Financial Times for news of whoch companies/commodity prices/other opportunities are soaring in value and juggling your investments regularly you don't need a SIPP.

In the simple Personal Pension products you still have choices about how to invest but the day to day financial savviness isn't needed. There will be numerous "funds" ypu put a proportion of your investments into which will have different parameters eg "low risk" or "ethical" or "UK SMEs" and the pension provider has fund managers who do the day to day investment decisions withoin those parameters. This is much lower fees than a SIPP.

When you are investing over decades, it doesn't matter too much what the markets do in the short term, there will always be growth eventually so even if there's a dip, so long as you are paying in every monthdips in the economy will mean your fund manager can snap up bargain investments cheap which then create significant growth in the long term, so a decent ongoing monthly contribution is more important than the initial lump sum.

As a rule of thumb the amount you put into your pension should be a percebtage of your income thar is half your age when you start the pension eg 15% if you are 30, 20% if you are 40.

Pension first if you haven't done this already.

I have a company pension and make sure my contributions keep me under 40% tax threshold.

I use a LISA to transfer £4K out of my ISA each year to get the £1k so if you have money in an ISA you could do this too. But only if you don't then need the money as you can access till you are 60.