Budget update

There had been some worrying rumours that tax relief contributions would be cut for higher rate tax payers and that the 25% tax free lump sum would be abolished. Happily, they were unfounded, at least for the time being.

Instead, the chancellor introduced a new lifetime ISA. Read more about the lifetime ISA (LISA) here.

Does this mean under 40s should use the LISA instead of a pension? As always, it depends on individual circumstances. But a few things to consider:

1. A lot of under 40's are saving for a house, and this is what the majority will probably use the allowance for, if they haven't already opened the Help to Buy ISA. but if you are not one of these, and you are a basic rate tax payer, the lifetime ISA may be the ideal place to start saving for your pension, with a guaranteed 25% tax relief until 50. Don't forget, if you are saving for a house, you should still be saving for your retirement.

2. Pensions have tax relief on the way in, for as high as 40% or 45%, for higher rate and additional rate tax payers respectively. Employers can also contribute to your pension. They cannot do this with your ISA.

Similar to the pension, you must leave it untouched (until 60 for the ISA, 55 for the SIPP) to benefit from the tax relief to use at retirement.

Self employed

If you are self employed, the scrapping of National Insurance contributions 2 could free up some more for you to invest for your retirement.

Published on 17/03/2016