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Recent media reports have highlighted a potential disadvantage of saving for retirement in a Lifetime ISA (LISA), compared to a traditional pension.
Retirement savings in registered pension schemes are fully ignored as capital in any means testing for state benefits. Although, actual or deemed pension income can be taken into account.
However if a LISA saver needs to claim means tested state benefits, their LISA savings will always be taken into account as capital – in the same way as for other types of ISA or ordinary savings. They may be denied means tested benefits. If they have to access their LISA savings instead, this could trigger an early withdrawal penalty. (Confirmed in Pensions Advisory Service guidance.)
For further discussion of the relative features and benefits of the main tax advantaged savings options, see our article Techtalk answer . . . ISA, LISA or pension? (PDF)
9 March 2018
If LISA savers claim means tested state benefits, their LISA savings will be taken into account