Doubts over Lifetime Isa launch
The Lifetime Isa (Lisa), which is set to launch in April 2017, is in doubt following industry providers' warnings that too little detail has been provided by the government for them to launch the new Isa on time.
The Lisa allows any saver aged under 40 to save up to £4,000 a year and receive a 25% bonus from the government annually. These funds can then be withdrawn to a buy a first home or, alternatively, taken tax-free from the age of 60.
When he announced the Lisa in his budget, former chancellor George Osborne gave the industry 12 months to prepare for the launch.
“I know there has been some resistance in the industry to actually launching it, and there hasn't been sufficient decisiveness on the part of the government as to what it wants it to do anyway,” says Ros Altmann, former Pensions Minister.
“There's talk of having a 5% penalty for withdrawals and the ability to borrow against one's Lisa, but who's going to administer that and what would be the cost? It's quite a complex programme and the industry is busy trying to cope with freedom and choice.”
Over the weekend it emerged that several providers have doubts over whether they will be in a position to offer the new Isa on time.
The Financial Times reported that several industry providers said they are still waiting to hear key details on the Lisa's design, including contribution limits and how the saving's bonus will be paid.
Two of the UK's largest retail banks, HSBC and Lloyds Banking Group, said they were not in a position to confirm whether they would indeed be offering the Lisa to their customers from that date.
HSBC said there is more guidance coming from HM Treasury, which will provide clarity around Lisa. Standard Life said they do not feel there is sufficient time to properly launch the Lisa next April. Aegon said the government has not given the industry enough time to prepare.
Altmann had also criticised the Lisa for benefiting wealthy families the most and attracting savers away from workplace pensions.
“If you can afford to put away £4,000, you may have either filled your pension allowance, so this is a way of getting extra tax relief; or you might be a wealthy older person who gives money to the younger generation to help them save.
“But from a social perspective these are not the people you need to worry about in terms of pensions. If you want to give money to your grandchildren you can do that via your pension anyway.”
She says she would much rather see pension incentive spending being done in a more equitable way and with a longer-term perspective.
This article was originally written for our sister magazine, Money Observer.
Invidivual Savings Accounts were introduced on 6 April 1999 to replace personal equity plans (PEPs) and tax-exempt special savings accounts (TESSAs) with one plan that covered both stockmarket and savings products, the returns from which are tax-exempt. The ISA is not in itself an investment product. Rather, it’s a tax-free “wrapper” in which you place investments and savings up to a specified annual allowance where the returns (capital growth, dividends, interest) are tax-exempt (you don’t have to declare ISAs and their contents on your tax return). However, any dividends are taxed within the investment, and that can’t be reclaimed.