LISA Legacy

 

George Osborne might have left Number 11, but his legacy, for the moment, lives on……just. Many of his policies and plans are gone in less than 6 months. And let us not forget that it is his own political party that have ripped up what has gone before

 

The one of the few constants that remains is the advent of his dream child……the Lifetime ISA (LISA). It is due to launch in April 2017 for the under-40’s (age discrimination anyone?) and will bring a brand new way to save for the long term.

 

Technical details about LISA are (at best) slow to emerge……but the cloud is thinning as we get closer to the launch date. Over the last few weeks the Treasury has issued a couple of updated technical notes which fill in a number of the blanks on exactly how LISA will work. And soon we will get the detailed regulations accompanying the Bill which creates the legislative framework (the Savings (Government Contributions) Bill 2016 for those who would like to join my ‘nerd club’).

 

The general headlines are:

 

-       LISA can start at any age between 18 to 40.

-       Up to £4,000 a year may be invested up to age 50.

-       The Government will add a bonus each year worth 25% of the amount invested.

 

One of the big issues currently is that there is so much missing information / legislation that LISA providers cannot put together a LISA proposition and back office systems. And the clock is ticking with less than 6 months until launch.

 

However, the biggest issue of all is that LISA will only pay out charge / penalty free on a purchase of a first home or from age 60. If someone wants to get hold of their LISA funds before either of these events, then they will not only lose the government bonus (and any growth on it) but they will also have to pay a hefty 5% penalty on the value of the LISA withdrawal.

 

Let’s be fair, pensions are a huge turn off for the under-40’s because they are incredibly complicated and can’t be accessed until age 55. Putting access barriers / penalties in place puts LISA in the same ‘turn off’ category as pensions. Why not go the whole hog and call them Pensions!!!!

 

LISA was never designed to replace pension savings but the message and restrictive penalties certainly make LISAs and Pensions difficult to differentiate.

 

Who knows, we might just have a Chancellor that provides some pleasant surprises in the Autumn Statement to clearly differentiate. Emphasis on the word ‘might’ obviously.

 

We live in hope.