Lifetime Isa given green light, but doubts remain over launch date
The government has confirmed the Lifetime Isa will go ahead as planned and has so far resisted calls to expand the list of lifetime events that qualify for the generous bonus.
The Lifetime Isa (Lisa) will be rolled out in its present form and is expected to be available from next April. The Treasury yesterday published a Saving Bill which outlined the nuts and bolts of how the Lifetime Isa will work in practice.
It confirmed the new Isa will offer a generous government bonus of 25% to individuals saving for certain lifetime events.
The bonus, which is capped at a maximum of £1,000 a year, will be available to those using their Isa for a first property purchase or as a retirement savings vehicle (once they reach age 60). It will also be paid to savers of any age who want to access their cash because they have a terminal illness.
Those who wish to withdraw their savings for any other reason before they turn 60 will lose the government bonus and any interest or growth on this. They will also be hit with a 'withdrawal charge' of 5%.
But doubts remain over whether the Isa will in fact be available from next April. Various industry providers have warned that too little detail has been provided by the government for them to launch the new Isa on time.
Two of the UK's largest retail banks, HSBC and Lloyds Banking Group, last month said they were not in a position to confirm whether they would indeed be offering the Lisa to their customers from next April.
Speculation Lisa would not go ahead
There was also some speculation that the launch of the Lisa might not go ahead as planned. Former pensions minister Ros Altmann told our sister publication Money Observer last month: “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.”
But in publishing the Savings Bill the government has dispelled these fears.
Contrary to some expectations, however, the Bill contained no mention of additional ‘lifetime events’ being added to qualify for the generous bonus. When the new Isa was first announced, during March's Budget, the government had said it was open to the idea of adding further lifetime events to qualify for the bonus.
The government also stopped short of including any further details on the prospect of extending the Lifetime Isa to enable loans. Former chancellor George Osborne had said he would consider exploring whether flexibility should be introduced that would enable savers to borrow from their own fund.
Osborne said he would look at whether the Lifetime Isa should follow the model used in America's pension system, which allows savers to borrow up to 50% of their fund (up to a maximum of $50,000) and pay it back over a set period of time without incurring a penalty.
No tinkering welcome news
The fact that the government has resisted the urge to tinker has been welcomed by providers.
Tom McPhail, head of retirement policy at Hargreaves Lansdown, says: “We are pleased the government has chosen to keep the product as simple as possible, with penalty-free withdrawals limited to first house purchase, withdrawals after age 60 and terminal illness. More complexity would only have added to the costs paid by investors.”
Jonathan Watts-Lay, director at WEALTH at work, adds that the Lifetime Isa should not be viewed as a threat to pensions.
Some pension providers, including Ageon, have warned the Lifetime Isa poses a risk if it is poorly positioned as a competitor to workplace pensions. The fear is that in choosing the Lifetime Isa over the workplace pension individuals will miss out on receiving valuable employer contributions.
“Pensions should, of course, remain an integral part of saving,” says Watts-Lay. “Yet other choices such as the Lisa should not be seen as a threat, as they may in fact encourage people to develop a savings habit which ultimately could benefit pension savings. After all, the Lisa is a great option for those who want to save for a deposit on their first home due to the guaranteed bonus.”
This article was originally written for our sister publication, 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.