The much heralded Lifetime ISA (LISA) finally launches….. to a muted response.
April 6 2017 saw the launch of the newest form of ISA, but with only three providers offering the Lifetime ISA at its launch date and no banks and building societies offering it at all, savers seem to have few options open to them.
The new ISA allows people to save £4,000 a year and get a £1,000 Government bonus. It can be opened up to the age of 40, meaning those who had already turned 40 by April 6 were not eligible.
The money can be used either to buy a first home or saved until the age of 60, when it can be redeemed.
However, only Hargreaves Lansdown, the Share Centre and Nutmeg, who all offer online-only services, were ready to offer the LISA on its launch day. The first cash-only version of the LISA will be available from Skipton Building Society in June.
The LISA has been controversial up to its launch, with Nationwide being one provider to say it will not offer the new ISA at all, as the exit charges are too punitive.
If you want to take your money out before the age of 60 and not to buy your first home, you will pay a 25pc charge on your total pot. This is intended to reclaim the government bonus, but it will also take a chunk of any interest or investment growth savers have seen and even takes some initial capital they have contributed.
The offering from the Share Centre has also been criticised for its high charges, with the fund shop only allowing investors to put their money in three ready-made funds, which have very high ongoing charges of between 2pc and 2.1pc.
Personally I thought the Lifetime ISA was a very creative solution to a very real problem. It looked to provide a solution for young people who are looking to save and invest for their first home and/or retirement and was a hybrid of a Personal Pension and an ISA Investment. It seems a real shame that it has not been positively received by providers which I feel risks tarnishing its image from the outset.
Hopefully we start to see a bigger appetite to both offer and to invest in the Lifetime ISA later in the tax year!
Facts about the LISA:
- Adults aged 18 to 39 can open a LISA.
- Only £4,000 each year can be added and this is eligible for the 25pc government bonus (£1,000 on a £4,000 contribution).
- The bonus will be paid at the end of the year for the first year, and monthly after that.
- The money can be invested in cash or stocks and shares.
- You can contribute, and get the bonus, up to age 50. The money has to be used to buy a property worth up to £450,000, or held until age 60.
- The money can also be withdrawn in terminal illness or death. After the age of 60, the money can be withdrawn freely.
- If the money is used for any other purpose before that date, a 25pc penalty applies to both the original deposit and any savings or investment growth.
- This is an effective 6.25pc charge on your contributions. The Help to Buy Isa can be transferred in during the first year, but after that it will count towards the annual LISA limit.
- Contributions to the Lifetime Isa count towards the annual Isa limit, which is £20,000 from next month, but you can hold other ISAs at the same time.
- The Lisa has the added flexibility of being a retirement savings vehicle too.
For further information about any form of ISA saving please contact Adam at firstname.lastname@example.org