16 March 2016
The chancellor may have stepped back from his original plans for a fully fledged Pensions ISA (PISA) but it does seem that the new Lifetime ISA he announced is definitely leaning towards a PISA.
As part of his 'budget for the next generation' the chancellor announced a brand new flexible saving opportunity for the under 40s, building on the success of the Help to Buy ISA introduced in 2013.
The new lifetime savings account gives adults under 40 the opportunity to save flexibly for the long term in one account. The savings can be used to buy a first home or or to draw down in retirement, ensuring savers no longer have to choose between the two.
The Lifetime ISA (LISA) will be available from April 2017 and will allow adults up to the age of 40 to save up to £4,000 each tax year and receive a 25 per cent bonus from the government until they reach the age of 50 ie a maximum of £1,000 per tax year.
The savings and government bonus can be used to help buy a first home worth up to £450,000 at any time after 12 months after opening the LISA. These accounts are limited to one per person rather than one per home – unlike the Help to Buy ISA which is only available per household. Funds already saved in a Help to Buy ISA can be transferred into the LISA or can be kept separate with savings continuing to be made into the Help to Buy ISA until November 2019. However the government bonus from only one of the accounts can be used to buy the first home.
If not used to buy a home, the savings and government bonus can be withdrawn, tax free, from the LISA from the age of 60 for use in retirement.
Recognising that people need flexibility in their long term savings, savers will be allowed to make withdrawals at any time for other purposes, but those doing so will have to hand back the government bonus plus any interest or growth on it and pay a five per cent charge for doing so. So although the flexibility is to be welcomed there are strings attached!
The new LISA is just another option for savers and for some, the existing pension and ISA routes may still be more appropriate depending on when and why they want access to the funds.
If you would like to discuss how these announcements might affect you please contact Jackie Hall or your usual RSM contact.