Trustnet Magazine Issue 27 March 2017 | Page 8

/ LIFETIME ISA /
It is hoped the Lifetime ISA will encourage people to take more responsibility for their retirement planning . Anthony Luzio says it may have its work cut out

T HE LIFETIME ISA IS

ABOUT TO LAUNCH – but you may not know it . A recent survey carried out by Why Research on behalf of Scottish Friendly suggests that less than one in three adults have even heard of the Lifetime ISA , with this figure dropping to just 16 per cent among 18 to 25 year olds – a key audience for a product with a maximum age limit of 40 for new applicants . The research also highlights the general lack of understanding of the details of the Lifetime ISA : of the 31 per cent who have heard of the product , only 15 per cent say they fully understand what it is and how it works .
“ The implementation of the Lifetime ISA has been a botched affair by the government ,” says Neil Lovatt , commercial director at Scottish Friendly .
“ It ’ s not surprising that many people haven ’ t heard of a financial product that ’ s still to be introduced . However , awareness hasn ’ t been helped by the antipathy to the Lifetime ISA by the financial services industry which seems to be deliberately ignoring the introduction of this innovative new product .”
WHAT IS IT ? The Lifetime ISA was announced by the chancellor in the last Budget and will be launched in April 2017 . Under the scheme , anyone aged 40 or below will be able to put up to £ 4,000 a year into this savings vehicle until the age of 50 and will receive a 25 per cent bonus from the government capped at a maximum of £ 1,000 a year . This £ 4,000 allowance will sit within the £ 20,000 ISA limit .
However , anyone wishing to withdraw their savings before they turn 60 – other than for the purchase of their first home – will lose the government bonus , any interest or growth on this , and will also have to pay a 5 per cent charge . The government later decided to drop this charge for the first year and there are also exemptions in the case of terminal illness .
THE GENERAL IDEA The general idea behind the product is to encourage young people to save more for retirement , with numerous studies showing they are not putting enough money away for their old age .
Simon Nicol , pensions principal at Thomas Miller Investment , says that from this point of view , Lifetime ISAs are a good idea .
“ Survey after survey appears to show that young savers do not , in general , understand or value the tax relief available on pension savings ,” he explains .
“ ISAs , however , are widely understood and the government is banking on the concept of a bonus of 25 per cent being more appealing to young savers .”
“ The Lifetime ISA also attempts to tackle the other image problem of pensions for those in their 20s , being that there is a cost now , but the benefit is a lifetime away .”
“ To this extent , anything that encourages the saving habit must be welcomed .”
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