The new girl on the block, in terms of saving products, seems like she may not actually be around for much longer. LISA, or the lifetime ISA, is being threatened with abolition by a Treasury committee, having only been on the market for 16 months.
The LISA allows those aged between 18 and 50 to save up to £4,000 a year towards a pension or a first home tax free, with the promise of a 25% government bonus capped at £1,000 a year.
However, a panel of MPs have highlighted significant drawbacks with the scheme. Some of the negative feedback has centred around the scheme’s complexity and that is confusing to customers.
The LISA has always seemed a somewhat odd product in that it has two very different target audiences; those saving for a house and those saving for a pension. It’s difficult to see how one product could hold the same appeal for both.
In fact, it has worked better as a vehicle for those saving for a deposit on a house than those using it as a pension allowance. After all, what first time buyer wouldn’t want an extra 25% from the government? It hasn’t been as appealing to those looking for a pension replacement.
The main problem is the 25% exit penalty imposed if you withdraw money from the scheme for any purpose other than retiring or buying a house. This is viewed as exceptionally high, especially as many savers do not realise the penalty is 25% of the entire pot. Those who have had to withdraw money earlier, for whatever reason, have lost more money than they expected.
It’s true that demand for the LISA not been strong and there has been relatively little take-up. What’s more, very few advisers have been keen to offer them.
To some extent, though, it seems a shame to talk about scrapping the scheme when it has only really just got started. If you or a family member fall into the age range and do qualify for a LISA, it could be worth investigating one now and make the most of the government bonus before time runs out.
If you have any questions around this topic, please feel free to get in touch with us directly.