THERE were few giveaways in Philip Hammond’s spring Budget, with the Chancellor appearing more concerned with boosting the Government’s coffers through greater taxation on the self-employed than helping those struggling to make ends meet.
For the younger generation, however, he did confirm that the new Lifetime ISA (LISA) will launch on 6 April as planned, allowing anyone between the ages of 18 and 50 to save up to £4,000 tax-free every year, with the Government adding an annual bonus of 25 per cent of the amount saved in each 12-month period.
The catch? Only those aged between 18 and 40 can open an account and, while you will have to stop adding cash to it at age 50, unless you want to use the money as a deposit for a first home you will have to wait until you are 60 to access the money.
Oh, and if you want to get your cash early for anything other than a house you will have to repay the Government bonus in addition to a five per cent penalty charge.
Although it has been billed as a means of helping people get on the property ladder, the Government is also hoping that the LISA will encourage the younger generation to start saving for their retirement, with ISAs in general thought to be more user-friendly and less esoteric than pensions.
This has led industry watchdog the Finacial Conduct Authority (FCA) to issue a warning that anyone considering opening a LISA might divert cash from a workplace pension to do so, losing employer contributions at the same time.
“We acknowledge there may be circumstances where a retail client is saving into a personal pension plan to which their employer contributes, and that choosing to save into a lifetime ISA in preference to such a scheme might cause that consumer to forfeit employer contributions to that scheme,” the FCA said.
For Jon Greer, pensions expert at Old Mutual Wealth, the fact that the FCA had to come out with such a warning serves to highlight that the LISA is not a well thought out product but rather one that is likely to cause confusion among the people it is supposed to be helping out.
“The Financial Conduct Authority’s decision to add additional risk warnings to the Lifetime ISA on losing employer contributions to personal pensions is a step in the right direction,” he said.
“However, the move also cements the fact that the LISA is a muddled hybrid product that confuses the savings landscape and additional warnings can only do so much to make it clearer.”
This view is backed up by research from Glasgow-based mutual Scottish Friendly, which found that fewer than one in three adults has heard of the LISA with the proportion falling to 16 per cent among the LISA’s key demographic 18 to 25 year old age group.
Scottish Friendly’s commercial director Neil Lovatt said the financial services industry is partly to blame for the “torpor”, with few providers likely to offer a LISA from next month. Such apathy could also be laid at the door of the Government, however, with the release of details on how the LISA will work being so delayed that many providers had thought the idea was going to be scrapped.
Despite this, Mr Lovatt said he expects the LISA to become “the go-to investment for life’s journey in the years to come”, with the product having the potential to “become a truly customer-friendly lifetime investment that people will understand and have faith in”.
If this does happen it may be less because youngsters suddenly catch the savings bug and more because the benefts of the LISA are seized upon by those who are locked out of the product due to their age.
According to a survey from stockbroker The Share Centre, the majority of those over 60 will be encouraging the younger generation to open a LISA so that they can contribute towards it on their behalf. A total of 64 per cent of over 40s who responded to the research said they will prompt their children or grandchildren to open an account, with the exact same proportion saying they will help them fund it.
Darren Cornish, director of customer experience at The Share Centre, said: “We have already had strong levels of interest expressed by customers who see the Lifetime ISA as perfect for helping the younger generations of their family get started on their own investing plans.
“They are keen for their children and grandchildren to benefit from the Government bonus on offer, and they like the idea of a penalty charge that encourages them to keep their money locked in for the long term.”
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