April 6th will see the launch of the government’s latest initiative to encourage millennials to save for the future: the Lifetime ISA.
First announced in 2016, the idea is relatively simple; for however much savers put in, the government will contribute a further 25 percent. That would be before interest – meaning tt could give savers up to £32,000 of free cash.
The bonus is paid until the saver reaches 50 years of age, and the LISA will be available as both a cash or a stocks and shares ISA. The bonus is paid annually in the 2017/18 tax year, then monthly from April 2018 – once it reaches your account, it’s yours for good.
So what are the drawbacks?
Essentially, it is designed to encourage young people to save for either a house or retirement. So, if savers choose to access their money before they reach 60, or for anything other than to buy their first home, it comes with a hefty cost. The government will charge you a 25 percent penalty on the total value of the withdrawal – meaning that you could get back less than you put in.
The launch of the Lifetime ISA has not been without controversy.
Some argue that it only adds to the amount of options available to savers, which can be confusing. Mark Taylor, CEO of Selftrade from Equiniti, commented: “The savings and investment landscape is ever evolving. The range of products and vehicles now available on the market is staggering, and unfortunately it’s proving overwhelming to investors.”
Research from Selftrade appears to back this up. Taylor continued, “It illustrates the over-complicated nature of the savings landscape, with half of those questioned – 49 percent – affirming that they feel the space is becoming more complicated, with 1 in 3 – 30 percent – stating that the LISA had turned the reasonably well understood ISA into a much more complex product.”
This isn’t the only difficulty – it appears that the government have had considerable problems convincing banks and buildings societies to offer the LISA. Several banks have either rejected the idea, or failed to commit. Nationwide said:
“As a major savings provider, our members have many and diverse needs and we need to be assured that such products are simple for them to use and understand. We will always look at each new product as it arises and evolves in the interests of all our members.”
Many banks, including Aegeon and Lloyd’s, have said they will not be ready for the April 6th launch date. Both Nutmeg and Hargreaves Lansdown will launch an investment version of the ISA .
“It’s not just potential investors and savers who are struggling, only a handful of providers will be ready to launch on the 6th, with many having highlighted the lack of guidance from the government on the new ISA, and concerns over how many people will take up the product. This all comes at a time when many product providers are still implementing other regulatory changes to their systems”, Taylor said.