While higher savings rates among younger people may be desirable, the research suggests that many simply don’t have any spare cash to put aside.
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Holders must be between 18 and 40 to open an account and can save up to £4,000 each year, which will be topped up by a 25% bonus from the government until you are 50. This would then be topped up by a 25 percent contribution from the government. That amounts to a bonus of £1,000 a year for anyone who maxes out their Lifetime ISA contribution.
Osborne said that it will allow people to save for a new home or retirement. It offers the same level of top-up as a basic-rate pension, with £1 added for every £4 saved – the equivalent of 20 per cent tax relief.
Of course, the Lifetime ISA is not quite as flexible as a “standard” ISA, since with the latter the money can be withdrawn at any time for any objective.
Ministers are also considering allowing people under the age of 55 to take up to £500 out of their pensions, tax free, to pay for financial advice.
The current ISA limit will also go up next year from £15,240 to £20,000.
Part of the confusion, or at least difficulty, comes from the fact that with house prices as high as they are right now, many under 40s are faced with the tricky decision of having to choose between saving for a house and saving for a pension.
Huw Evans, the director general of the Association of British Insurers, said: “The test for success for the lifetime Isa will be whether it increases overall retirement savings and does not undermine the auto-enrolment programme”. More than nine out of 10 people in their twenties have stayed in pensions rather than opting out, but this progress risks being undermined. Similar to the help-to-buy Isa, the Government will add £1 to every £4 a saver sets aside up to a limit of £4,000 worth of savings.
Savers will be able to transfer money from other ISAs built up in previous years into their Lifetime ISA, and you will be able to transfer your Lifetime ISA between providers to get the best deal.
You will be able to open more than one Lifetime ISA during your life, but you will only be able to pay into one Lifetime ISA each year.
Since pension freedoms gave retirees the opportunity to access cash tied up in a pension, as opposed to purchasing an annuity, The Share Centre has seen an increase of 9.2% in ISA inflows year-on-year.
Pensions are paid out of gross income before tax is deducted or, if tax has been paid, it is rebated.
Yep, in the same way as the Help to Buy Isa, a couple can have one account each and both receive the bonuses.
I can see the appeal here for younger people, and the flexibility may well prove more attractive than a pension. If they withdraw the money before that age, they will lose their government bonus and any interest, and will have to pay a 5 per cent charge.
The big advantage of workplace pensions is that savers benefit from tax relief on contributions and employer contributions that will outweigh the tax benefits of the lifetime Isa. Those already automatically enrolled, or who soon will be, should remain in their scheme.
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Jon Gwinnett, product technical manager at Nucleus, says: “The lifetime Isa looks to be a reaction to the need to encourage the young to save for their future and we welcome this pragmatic solution”. Firstly, if this is about saving for buying a home, it may not help that much.
