Compared to the ISA market and take up of other products, Fidelity International believes these cost estimates are low and urges the Government to not seek to recoup costs by going after incentives to save for retirement.
Richard Parkin, Head of Pensions Policy at Fidelity International said: “The cost of the Lifetime ISA is estimated to be £170 million in the next tax year rising to £830 million in the tax-year 2020/21 with the cost coming from the government bonus of 25% which is paid as a top up to savings of up to £4,000 a year. In its impact assessment released today, HM Treasury estimates that over 200,000 people could take out a Lifetime ISA next year rising to 800,000 in 2020/21. These seem like big numbers but are actually relatively small when compared to the current ISA market.
“In particular, looking at ISA statistics for the tax year 2013/14 issued in August 2016, there were approximately 3.2 million subscriptions to Cash ISAs by those under age 40 with a further 450,000 into other types of ISA. Assuming only 20% of these people are saving for a deposit on a house then this would suggest over 700,000 might be attracted to the Lifetime ISA even before we consider the additional take-up that will be driven by the attraction of the 25% bonus.
“The opportunity to get a 25% bonus when saving for a house will no doubt appeal to many young people struggling to scrape together a deposit. It seems likely then that many of today’s existing savers will quickly switch to this new product.
As these numbers show, just looking at what’s already in Cash ISAs would suggest that the government estimates of take up are on the low side, perhaps significantly so. This isn’t allowing for switches from other savings’ products or the incentive for the bank of mum and dad to stump up extra cash to take advantage of the top-up.
“The government recognises that their estimates are highly uncertain but it’s clear that this could be a very costly policy.
Given the chancellor’s original aim was to limit the cost of tax-relief on pensions it was somewhat surprising to see this new incentive being announced in the last budget. We have to make sure that any overrun of cost on the Lifetime ISA isn’t used as a reason to take aim at incentives to save for retirement.”
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