Does the Lifetime ISA need a Lifeline?
Hailed as free money by some, the Lifetime ISA (LISA) was the brainchild of George Osborne, and was designed to help the under 40’s save for either their retirement or first home, with generous bonuses being thrown around.
However, with the start date of April 2017 looming, the life of the ISA is already in doubt with many providers saying they are not ready for the launch, while others are saying that the scheme is too complicated and will be delaying the launch of their own LISAS, with some boycotting the scheme altogether, “Nationwide has become the biggest ISA provider to announce it will not offer the Government’s flagship long-term savings scheme as a backlash is building against the Lifetime ISA.” (www.telegraph.co.uk/news/2016/09/08).
So, what is the LISA and why are providers not willing to embrace it in the way that they have encouraged other government savings schemes?
- As with any ISA, it can be invested as cash or as Stocks and Shares
- You can expect to receive a similar rate of interest to any other Cash ISA
- All gains are free from Capital Gains and income tax
- The money can be used without penalty if you are a first-time buyer, and partners can both open, and benefit whilst using towards the same property worth up to £450,000 across the country
- You will receive a government bonus of up to 25% (up to £1,000 a year) on your annual contributions which are limited to £4,000 per annum
- You have to be between the age of 18-40 and any savings up to the age of 50 will benefit from the government bonus
- Existing ISAS can be transferred in to the LISA
- After your 60th birthday you can take all of the savings tax free
- You can withdraw the savings at any time before you turn 60, however you will lose the government bonus (and any interest or growth on this), and may also have to pay a 5% charge
As you can see, there are a number of rules for the LISA, and this list is not comprehensive, which could be part of the concern for providers. With all the scandals that have hit the financial sector recently, can you really blame many for not wanting to jump on board with a more complex product like this? And this was not the only issue.
The other area for contention with the LISA is exit fee. Were you to save into the LISA, and subsequently need to access funds before retirement or property purchase, then the fee could be hefty, with a 5% charge and loss of interest and growth on the bonuses, this could be substantial.
So while the Lifetime ISA could be seen as a massive way to save in the future, with bonuses big enough to outstrip a normal ISA and the current poor rates on savings, and better access capability than a pension, there are many drawbacks as well, with less tax benefits than pensions, and heavy charges, it remains to be seen if the LISA will sink before it ever sets off.
If you want to find out more about the Lifetime ISA, and other ways in which you can save for your future, contact Contractor Wealth today, and let us use our expertise in Contractor finances to steer you in the right direction.
The value of investments may fall as well as rise and past performance is not a guide to future returns.
Financial advice is given by Contractor Wealth Management Limited which is an appointed representative of Intrinsic Mortgage Planning Limited and of Intrinsic Financial Planning Limited who are authorised and regulated by the Financial Conduct Authority. Intrinsic Financial Planning Limited and Intrinsic Mortgage Planning Limited are entered on the FCA Register (http://www.fca.org.uk/register) under reference 440703 and 440718.