One major benefit a Lifetime ISA can offer is accessibility.
You will not be able to access any of your pension money until at least 55, currently. If you are retiring after 2028, this age pushes back to 57.
A Lifetime ISA can be accessed at any time. However, if you access it before age 60, you are going to have to take a 25% haircut.
That’s a significant chunk of your money. It’s also more than the 25% bonus as it’s taken off your total balance and not added to your contribution.
Here’s how the numbers work. If you contributed £8,000 to a Lifetime ISA, the Government would add £2,000 (25%). This leaves you with a pot of £10,000. If you want to withdraw your money, you’ll lose 25% or £2,500. This results in a loss of £500 but unlike a pension, you can still get your cash in an emergency.
But you have to ask yourself; is that worth missing out on those juicy pension benefits that over time, will make a huge difference in the size of the pot of money becomes? Not for most.
If you have maxed out your annual pension contributions (currently £40,000 per year -2020/21) or have hit your Lifetime Pension Allowance (currently just over £1 Million), then a Lifetime ISA can provide an additional tax shelter for your pension monies.