Pension basics

Should I consider a personal pension or a Lifetime ISA?

Both pensions and Lifetime ISAs can be used to save for retirement but there are important differences between them, including when you pay income tax.

Your contributions into a pension aren’t taxed, but you pay tax on the money you withdraw from it during retirement. A Lifetime ISA is the other way around: you contribute money you’ve already paid tax on, but eligible withdrawals are tax-free.

For most people, it makes sense to pay into a personal pension rather than a Lifetime ISA, but this depends on tax rates or the age when you want to access your investments. A Lifetime ISA could be relevant if you’re self-employed, earning less than £10,000 from a single employer, not working, or if you expect to pay a higher tax rate in retirement than you do in work.

As this will depend on your individual circumstances, you’ll need to assess the benefits of a pension or a Lifetime ISA. Which? have produced this handy article which may also be of interest to you, but if you’re unsure, we recommend seeking independent financial advice.

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It's important you know

Capital at risk. All investing should be for the longer term. The value of your investments can go up and down, and you may get back less than you invest. Tax treatment depends on individual circumstances and may be subject to change in the future.

A 25% government penalty applies if you withdraw money from a Lifetime ISA for any reason other than buying your first home (up to £450,000) or for retirement, and you may get back less than you paid into your Lifetime ISA.

Your home may be repossessed if you do not keep up repayments on your mortgage.

Payments you make into your pension won’t be accessible until the minimum pension age (currently 55, increasing to age 57 from 2028). Tax treatment depends on individual circumstances and may be subject to change in the future.

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