The Lifetime Individual Savings Account, also known as the Lifetime ISA or simply “LISA”, is the brainchild of former Chancellor George Osborne and has finally arrived at the beginning of April for those wanting to get their hands on one. That might be trickier than you would think, however, with no banks or building societies currently offering LISAs to savers. A mere three providers are currently offering LISAs, although these are all stocks and shares accounts provided through investment platforms.
The reasons why high street providers have so far snubbed the new LISA are various in nature. Some say that they haven’t been given enough help by the government to be in a position to offer the new savings product, whilst others have simply said they prefer to offer the existing Help to Buy ISA, which can serve a similar function to the LISA. The main reason given, however, is that banks and building societies are finding that customers simply find the LISA too complex to understand, putting them off the product from the start.
For those who are still confused, here’s how the new LISA works. It’s available to those aged over 18 and under 40, and a maximum of £4,000 can be deposited in the account every year. The government then provides a bonus of 25% of whatever has been saved each year, meaning that those who save the top amount available will receive an extra £1,000.
It’s a generous amount to help boost your savings, but there’s a catch: the money saved can only be withdrawn if it’s used to buy a first home or once the account holder has turned 60. To encourage savers to use their LISA to buy property or for their retirement, any money that’s taken out without meeting this criteria will be hit by a 25% penalty. While this is intended to reclaim the government bonus, it will also take a chunk of any interest or investment growth savers have seen, and so anyone requiring early access to their funds, may end up with less than they put in.
For example, say you invest £100. The Government will give you a 25% top-up which will mean you have £125 in total. If your funds have then received no growth but you need early access the 25% exit penalty means you will end up with just £93.75.
Whilst the £3,000 government bonus available from the Help to Buy ISA is potentially far lower than that available from a LISA, the fact that the new product has more intricacies as to what you can and can’t do, means that both banks and savers seem to be sticking with the more established account.
That said, more banks have indicated that they plan to begin offering LISAs in the coming months, and if you’re happy not to touch your savings until your 60th birthday you could end up with a tidy nest egg in your savings account provided that you pay as much into it each year as possible. The LISA won’t be for everyone, but there are good reasons to give it some consideration.
If you are an Employer who feels that LISA has a part to play in your workplace benefit plan, then it’s important that not only you but also your staff receive the necessary advice associated to the differences between LISA and, for example, your automatic enrolment pension scheme. At Creative we can provide both parts of this advice, and even help you source the appropriate solutions and would urge you to discuss this with your regular Creative consultant or email us on email@example.com.
- The value of your investment may go down as well as up.
- You may not get back the full value of your initial investment.