If you’re self-employed and pay a higher rate of tax a pension is likely to be more tax efficient.
If you’re self-employed and a basic rate taxpayer, you should consider saving into a LISA. This is because you won’t have the benefit of any employer pension contributions to help boost your retirement savings.
The 25% LISA bonus you get from the government, is equal to what you’d receive as basic-rate tax relief in a pension on a personal contribution of up to £5,000 (for example, you pay in £4,000 into a pension and the government tops this up with £1,000 in basic rate tax relief). However, if you take money out of a LISA from age 60, it’s tax-free. Whereas if you take benefits from a pension (you’ll usually need to be at least 55, or 57 from 2028, to do this) normally only up to 25% of the amount taken will be tax-free with the rest taxed as income.
Unlike a pension, money in a LISA can be withdrawn – but this will normally incur the 25% government withdrawal charge, so you could get back less than you put in. Anything you withdraw could affect what your retirement plans will look like. A LISA isn’t suitable as the first port of call for emergency savings. But for those with a reasonable level of emergency cash already saved, it could be considered for long-term investing, with access to the money still being possible as a last resort.
