Omnium Employee Benefits

Lifetime ISA under criticism, but for many it could be the obvious choice

Launched less than 18 months ago, in April 2017, the Lifetime ISA (known as ‘LISA’) has come in for criticism from a Treasury committee of MPs based on “its complexity, its perverse incentives, its lack of complementarity with the pensions saving landscape and its apparent lack of popularity.”

LISAs were introduced to help savers aged 18 to 40 to put away up to £4,000 a year until the age of 50, with the Government adding a 25% annual bonus worth a potential £1,000. However, concerns have been raised that savers could opt for a LISA in preference to a workplace pension, which would mean they would be missing out on employer contributions and tax reliefs. There has also been criticism over the lack of clarity regarding the withdrawal penalty which states that if money is taken out from a LISA before the age of 60, and is not used to buy a first home, the entire amount saved will be penalised at 25% unless the saver is terminally ill.

Another problem from an industry perspective is that LISAs are expensive to administer, which is why so few providers have brought a product to market. Typically, clients are sent direct to the consumer platform.

However, for many younger people (45+) who have children aged over 18, and who they want to help get on to the property ladder at the appropriate time, a LISA could be a perfectly sensible choice.

Steve Webb, Director of Policy at Royal London, commented: “The original worry was people would choose LISAs and opt out of the workplace pension. In fact, it’s been a bit of a flop.”

A counter view has been put by Martin Stead, CEO at Nutmeg, who has described the potential abolition of LISAs as “nonsensical”. He added: “The LISA is not yet two years old. The government should be investing time and money in promoting this product, not debating whether or not to keep it.”

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For more information on LISAs, or if you would like advice on managing your assets for you and your family, please call us on: 01483 205890.

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