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Initial success of Help to Buy ISA bodes well for its flexible replacement the Lifetime ISA
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But with Brexit taking up Government and regulator time, LISA must be kept simple to ensure it’s delivered on time
The Chancellor announced in his Budget a new Lifetime ISA, targeted at under 40s, which will allow them to save for either a first house deposit or retirement. Contributions of up to £4000 each year will receive a 25% Government bonus, although this plus an additional 5% will be reclaimed if savings are used other than for house purchase or from age 60 for retirement.
While due to go live in April next year, details remain in short supply. The Government consulted on whether or not to allow higher contributions to be paid in without the bonus; if individuals should be offered a facility to ’borrow’ from their fund without losing the bonus if repaid within a given time-period; or if exit penalties should be waived if withdrawals are for other ‘life events’ such as requiring care or being made redundant.
Only once the government has finalised details, can the financial regulator consult on how to protect consumers through regulation of the product and the way it is sold. And only then will prospective providers have the information needed to finalise their product offerings.
Steven Cameron, Pensions Director at Aegon says: “The Government is running out of time to announce key features of the new Lifetime ISA if it is to be up and running from next April. The Lifetime ISA will allow under 40s to save for either a first home deposit or retirement, with a 25% bonus on contributions up to £4000 a year. This makes it a more flexible replacement for the Help to Buy ISA, which has already attracted over half a million savers. The likely strong demand for LISA means despite the focus on Brexit, we expect the Chancellor will want to see his key Budget proposal put into practice, for the benefit of savers under age 40.
“The Government is considering additional features such as borrowing facilities, wider penalty free withdrawal options or allowing contributions above £4000 but without the bonus. We’ve always felt these would make the product much more complex for savers and providers alike without boosting its appeal. More than ever, as it prepares for Brexit, the key message we’d send to Government is ‘Keep LISA simple’. “
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