The new LISA loses out to employer pensions in most scenarios says Fidelity

11th May 2016


Richard Parkin Head of Pensions at Fidelity International crunches the numbers and looks at how the LISA stacks up against auto-enrolment and salary sacrifice.

“We’ve heard no end of debate around how the LISA will leave any form of pension out in the cold yet some simple number crunching shows that, for those looking to save for retirement, the LISA is not the “cure all” for every retirement need.

“Simply put, the availability of the employer contribution under automatic enrolment means that joining an employer sponsored pension scheme remains the best option for all those who are saving for retirement. Come April 2019, the employer contribution plus the tax benefits delivers a return of 70% on a net contribution for a basic rate taxpayer under automatic enrolment. Compared to the 25% tax benefit under the Lifetime ISA, employer sponsored pensions win hands down.

“But what about when the employer support runs out? How does the LISA stack up there? It’s true the LISA does have advantages here. In fact, for anybody who is paying the same or higher rate of tax on the money coming out of a pension than the money going in, the LISA offers better value all other things being equal.

“However, if the company pension scheme provides the facility to sacrifice salary for pension contributions then the pension becomes the better place to save again for most people. The table below shows that the benefits of salary sacrifice assuming the employer does not share any of its National insurance saving. Many do which is likely to make salary sacrifice the more attractive option for all concerned. Add in the fact that the pension is available to all for the whole of their career and it looks like LISA has its work cut out.”

Net cost to employee of providing £1,000 after tax at retirement



Pension (Basic rate relief, basic rate on income)

Pension (Higher rate relief, higher rate on income)

Pension (Higher rate relief, basic rate on income)

Without salary sacrifice






With salary sacrifice






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