LISA or S&S ISA for retirement

[sunshinedaises]

Hi I already pay an AVC on my pension which I don't want to increase at the moment but I want somewhere to put any additional money I have without committing to it weekly. Is it better in a LISA or S&S ISA. I'm 37 so don't need it anytime soon

LISA gets a government bonus, but a penalty if you withdraw before retirement.

So LISA would seem better than a normal S&S ISA for retirement saving, but if it's saving for any other purpose then the flexibility of a normal S&S ISA might be better.

Note that the underlying investments could be exactly the same - either can be invested in stocks and shares - so that shouldn't impact it.

A LISA you can access at age 60 or to buy a house. You get a 25% top up from the government on any contributions but the penalty is more than they contribute if you need to access it sooner.

A S&S ISA you can access anytime but there is no contribution from the government.

So if you know it is definitely for retirement - a LISA is better. It is limited to £4000 per year while S&S ISA is 20K.

I have a LISA and a S&S ISA. I’d start saving now in the LISA. You can only pay in until you’re 60, then it matures. So from 50 you can open an ISA and save from then.

I just checked my potential return at age 60, assuming I continue to pay in 4k per year plus 1k gov top up, plus interest. The lowest estimate is 101k, moderate is 147k and high is 173k. Tax free

OurYou sound pretty clued up if you are already contributing to an AVC. Depends on how much additional money you have I guess and your circumstances mortgage, potential maternity leave etc. The LISA gets that government contribution but can only be used for house deposit (with criteria) or at 60 or you pay a penalty. In effect that money capped at £5k including the top up is locked away. In a stardard ISA your limit is £20k but it can be accessed whenever you need it.

Might you need the money before 60? Do you have any debt other than mortgage or student loan? Plan to retire before state pension age and need funds to bridge the gap? As you are only 37 plenty of time for your ISAs to grow whichever option you choose.

If you're opening a Lifetime ISA you can only do that when under 40 and make payments until you're 50 and then you can withdraw from the age of 60.

Whereas with an ISA you can invest and withdraw at any time.

I think it would make sense to do a combination of the two strategies - the LISA to benefit from the 25% bonus and the ISA for flexibility and greater levels of contributions.

I read the below article recently, comparing LISAs with both ISAs and with SIPPs. This includes the main pros and cons while highlighting areas of nuance - a good starting point without any further detail from your OP.

https://financialinterest.com/lifetime-isa-analysis/