Savers Could Get £ 40,000 ‘Free’ Retirement Money Using Lifetime ISA Trick

Tom Selby, head of retirement policy at the AJ Bell investment platform, explained a ‘double bubble’ retirement tip to increase your retirement pot by thousands of pounds

There are ways to increase your retirement fund by the thousands

Savers could pocket £ 40,000 in ‘free money’ for their retirement by using a ‘double bubble’ pension trick.

It’s about saving money through a Lifetime ISA (LISA) which is a type of savings account used to buy your first home or save for retirement.

You can save up to £ 4000 per year on a LISA account and the government will match your savings up to 25%.

So if you save the maximum sum of £ 4000 you will get £ 1000 bonus every year.

You also get the 25% tax-free bonus on small amounts, if you can’t afford to save £ 4000 over the course of the year.

For example, if you save £ 1000 over 12 months, you will get £ 250 free from the government.

A Lifetime ISA (LISA) allows you to benefit from tax-free money from the government


Getty Images)

LISAs are available to people between the ages of 18 and 49 – so you can’t keep saving beyond your 50th birthday.

But if you were able to save the maximum amount during that time, you could end up with £ 483,000 in your LISA jar, assuming 4% annual investment growth.

That’s according to Tom Selby, head of retirement policy at the AJ Bell investment platform.

You can only access LISA money after you reach the age of 60, so you will have to wait ten years until this point to withdraw the money.

Provided you don’t need to spend that money at age 60, Mr Selby says then there is another way to increase your retirement pot by thousands of extra pounds.

If you transfer £ 32,000 from your LISA fund into a Self-Invested Personal Pension (SIPP) every year, you could get a basic tax break of £ 8,000 per year.

How do you save for retirement? Let us know: [email protected]

Keep doing this for the next five years, until you hit the age of 65, and you’ll have an extra £ 40,000 for your pension fund in tax relief alone, according to research from AJ Bell.

Investing your retirement savings in a SIPP may not be for everyone, and you should do your research first before deciding if it’s right for you.

SIPPs are generally intended for people who understand investing and are willing to put their money aside for a long time.

They effectively work like a DIY pension because you control and manage your own investment, which means your money can go up or down.

Mr Selby said: “People using a Lifetime ISA (LISA) for retirement savings might have the option of getting a ‘double bubble’ on their premiums when they reach their 60th birthday.

“An 18-year-old who puts the maximum into a LISA until his or her 50th birthday and enjoys an annual investment growth of 4% could have a fund worth £ 483,000 before the age of. 60 years.

“If that’s not juicy enough, provided they have sufficient income (and are not subject to the annual money purchase allowances), they could reinvest £ 32,000 a year of that money into a pension. , benefiting from £ 8,000 per year on a base. rate of tax relief on pensions.

“If they do this for five years they will have added another £ 40,000 to their retirement fund just as tax relief.”

What to know before opening a LISA

The starting point of any retirement savings should always be your work retirement, if you are entitled to it, according to Selby.

In fact, you will benefit from an initial tax relief and an equivalent employer contribution.

You can also have a LISA in addition to an occupational pension plan.

For pension savings outside of work, the benefits of using a LISA for your pension savings depend on which tax bracket you are in.

If you are a higher rate or additional rate taxpayer, the tax relief available on a pension – at 40% or 45% – is significantly higher than the initial LISA bonus of 25%.

You can also have a LISA alongside a company pension plan


Getty Images / EyeEm)

Mr Selby said: ‘For retirement savings outside the workplace – or for people who do not benefit from automatic enrollment like the self-employed – whether or not a LISA is the right option will depend on your personal situation.

“For base rate taxpayers, the combination of an initial bonus and tax-free withdrawals from age 60 makes LISA an attractive alternative when it comes to retirement savings – especially when considering the possibility of retirement savings. ” use tax-exempt funds to receive additional tax relief for pensions at age 60.

“It’s important to remember that pension withdrawals will be taxed as income.

“However, in most cases 25% of withdrawals are tax exempt and you can minimize your tax bill by applying drip withdrawals over time to use your tax deduction on the bank. personal income. “

Finally, actual returns on investments will vary depending on a number of factors, including the mix of assets someone owns and the fees you pay.

And of course, returns on investment are never guaranteed.