The Lifetime Isa is a welcome move to get people engaged in saving earlier in a product that at face value is simpler for most people to understand than a pension.
From April 2017 anyone under 40 can open a lifetime Isa and save up to £4000 a year, which will have the government contribute £1000 a year until the age of 50. That money can be used for a new home or be saved for a pension.
The money will not be taxed when it is removed. The government will consult with the industry on whether, like the American 401K plan, savers can return money to the account to reclaim the bonus.
It seems people can hold multiple Isa wrappers within the £20,000 contribution limit so there is a new choice for people to navigate.
More detail is also needed on how this will work, especially with regards to auto-enrolment, to ensure people don’t stop saving into pension and use this instead.
It would be good to know more detail about the availability or not of existing pension contribution relief.
Over time, one imagines there will be more convergence between Isas and pensions in coming years and that may start as early as the Autumn Statement 2016.
In this new world there is a risk that when one allows multiple uses for individual savings, as this does, that people don’t adequately save to cover an ever increasing period of retirement.
At the same time further changes are coming in the form of a new delivery model that will replace the Money Advice Service, and merge the functions of TPAS and Pension Wise.
The new delivery model is made up of a new pensions guidance body charged (a merged TPAS and Pension Wise) and a new slimmed-down money guidance body.
Access to advice remains a concern for those reaching retirement too, as up to 480,000 people in the UK are not taking advice for arguably some of the most complex decision they will face in life.
