Continuing on the ISA theme from last month, the Government stated their intention for a new form of savings for young people in the recent Budget.
From April 2017, those over 18 and under 40 will be able to open a new Lifetime ISA. This will allow up to £4,000 of savings each year to which the Government will add a 25% bonus.
Contributions will be made with the individual’s and the additional bonus will be payable up to a maximum of £1,000 for each year between the ages of 18 and 50. The maximum that can be paid into a Lifetime ISA will therefore be £128,000 with a maximum bonus of £32,000.
The money in a Lifetime ISA can be used to:
Individuals will be able to withdraw money before age 60 for other purposes however the Government’s element of the fund, including any interest or growth on the bonus will be returned to the Government. In addition there will be a 5% charge.
However, the introduction of the new Lifetime ISA has the potential to cause some confusion. After years of trying to persuade young savers to begin putting money into a pension he now seems to have established a rival product. For example those who opt out of pensions in favour of the Lifetime ISA would lose the contribution from their employer and the chance to build a tax-free lump sum from a pension pot - how will they know which is right for them?
Young workers have had some of the lowest opt-out rates when they have been enrolled into workplace pensions, yet the Chancellor's desire for a new product could undermine the progress which has just been made in ensuring young workers have savings for retirement.
As usual and in common with other areas of financial planning, this needs careful thought and planning ensuring an informed decision can be made to match overall objectives.
The above is provided for information purposes only and we recommend that professional independent advice is taken prior to making any decisions or taking any action.
From April 2017, those over 18 and under 40 will be able to open a new Lifetime ISA. This will allow up to £4,000 of savings each year to which the Government will add a 25% bonus.
Contributions will be made with the individual’s and the additional bonus will be payable up to a maximum of £1,000 for each year between the ages of 18 and 50. The maximum that can be paid into a Lifetime ISA will therefore be £128,000 with a maximum bonus of £32,000.
The money in a Lifetime ISA can be used to:
- Supplement retirement income from age 60, unlike a pension where it is age 55, or
- Accessed before then to help first time buyers buy a home worth up to £450,000 at any time from 12 months after opening the account.
Individuals will be able to withdraw money before age 60 for other purposes however the Government’s element of the fund, including any interest or growth on the bonus will be returned to the Government. In addition there will be a 5% charge.
However, the introduction of the new Lifetime ISA has the potential to cause some confusion. After years of trying to persuade young savers to begin putting money into a pension he now seems to have established a rival product. For example those who opt out of pensions in favour of the Lifetime ISA would lose the contribution from their employer and the chance to build a tax-free lump sum from a pension pot - how will they know which is right for them?
Young workers have had some of the lowest opt-out rates when they have been enrolled into workplace pensions, yet the Chancellor's desire for a new product could undermine the progress which has just been made in ensuring young workers have savings for retirement.
As usual and in common with other areas of financial planning, this needs careful thought and planning ensuring an informed decision can be made to match overall objectives.
The above is provided for information purposes only and we recommend that professional independent advice is taken prior to making any decisions or taking any action.
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