Is Lifetime ISA an opportunity or a disaster for you?

Weighing up the Lifetime ISA

The Lifetime ISA is launched in April, and while only a few products will be on the market by then, we can expect it to be a booming business over time. The question is whether we should be snapping up a Lifetime ISA, or whether it would end up being an expensive mistake.

See also: Number of Lifetime Isa providers 'may be small to start with'

See also: Treasury 'could destroy pensions', warns former Minister

See also: Could Lifetime ISAs seriously damage your wealth?

The short answer to this is "it depends", but the long answer is more useful.

What is it?

The Lifetime ISA is a savings vehicle designed for young people. The idea is that anyone between the age of 18 and 40 can invest in one - and as long as you have opened it by the age of 40 you can keep contributing to it until you are 50. You can put up to £4,000 a year into it - either as a lump sum or as regular contributions. The state will then add a 25% bonus on top. This is in addition to any interest or investment gains within the account you choose.

The money can be used for two things: it can be used by first-time buyers as a deposit on a house (as long as the house doesn't cost more than £450,000). This can be bought at any time - as long as the LISA has been open for at least 12 months. It can also be used in retirement, once you hit the age of 60. If you use it for either of these purposes it's tax free. If you use it for anything else, you'll lose the government's bonus and pay 6.25% on the amount you put in.

First-time buyers

The experts agree that this is a great way to save for a first home. Danny Cox a Chartered Financial Planner for Hargreaves Lansdown, says it should be the first choice for people aged 18-40, explaining: "No other ISA offers as generous a government top up (the Help to Buy ISA offers a 25% top up, but the maximum amount you can save is more limited and the bonus isn't paid until completion of a property purchase)."

If you already have a help-to-buy ISA, Cox says it's worth considering transferring this to a LISA before 5 April 2018, to make things simpler and more flexible. He explains: "The LISA offers higher contribution allowances, the option to build a bigger deposit by investing rather than just saving in cash, and a more immediate bonus payment, all of which suggest LISA is the preferable option for investors in the target age range. Government rules allow the Help to Buy ISA to be transferred into a Lifetime ISA in the 2017/18 tax year without counting towards the £4,000 Lifetime ISA limit."

The exception, he explains, is if you want to buy a property within the next 12 months, as you have to wait a year from the point of opening your LISA before buying a house. If you plan to buy sooner, it's worth sticking with your Help-to-Buy ISA.

If you want to use it for retirement savings, however, it's not such a dead cert. Cox explains: "A Lifetime ISA can be used to save for retirement, however a workplace pension should be the first port of call to pick up valuable employer pension contributions." Steven Cameron, Pensions Director at Aegon agrees: "Virtually all employees will be better off making full use of their workplace pension where they receive a valuable employer contribution."

And if you plan to use it for saving for both a property and for retirement, there's another problem. Cox explains: "If your home purchase is in less than 5 years away, cash is the most sensible option, even though interest rates are pretty miserable at the moment. However for those expecting a longer run in to get on the housing ladder, stocks and shares offer the potential for higher returns, though of course with greater risk to capital."

As Cameron says: "While the ability to use LISA to save for either a first house purchase or for retirement may seem like a positive and flexible feature, it creates real challenges when it comes to deciding on an appropriate investment strategy. Short term saving for a house deposit suggests a cautious, cash-based investment while stockmarket investments, with scope for above inflation returns, are more suited if saving long term for retirement. An investment strategy that doesn't match savings objective can have disastrous consequences and this poses real challenges for any saver undecided on what they plan to use their LISA for."

Be quick
If you do plan to get a LISA, Cox warns that you may need to be quick - especially if you are approaching 40. He says: "If you're turning 40 soon, you need to make sure you set a LISA up before your 40th birthday to ensure you can continue to save into a LISA up to your 50th birthday."

Even if you're at the bottom end of the eligibility age rage he says: "The longer you save into a Lifetime ISA, the quicker you will reach your target deposit and step onto the property ladder."

Eight celebrities who hate saving
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Eight celebrities who hate saving

“I am a spender,” the former Formula 1 team owner Eddie Jordon told The Telegraph. “I've always been like that. Have I got worse as I've got older? Probably, though I'd like to think I'm not irresponsible, but if there's something I see and want, then I'll get it. My mum has a great expression: "There's no hem in that garment." What she meant was that you can't put money in the hem of the garment as it was the place that little old Irish ladies would hide their money. Whatever money I've made, I want to use, while not dying in a poor house. I don't want to leave money littering the place when I go, where people have rows with each other.”

Advice from Jo Gornitzki, a spokesperson for

“Eddie is right when he says that leaving cash behind when you pop your clogs can cause family feuds - but only if you don't plan who you want to leave your money too. A bit of forward thinking - gifting money away before you die and drawing up a solid will - and the former motor racing boss can make sure his wife and kids won't come last in the money race.”

“I’m definitely a spender,” the footballer Robbie Savage told The Telegraph recently. “For me if I’ve got it, I spend it. If I’m broke in five years, I’ll have had a great time. It’s the most difficult lesson I’ve had to learn about money: you can’t take it with you. I like spending on cars, clothes, food and wine – the nice things in life. Even though I’m a spender, I’m also a grafter and I work exceptionally hard to keep it coming in. I’ve had people have a go at me for this, but I’ve had some unforgettable experiences because of my work ethic.

Advice from Kirsty MacDonald, spokesperson for accountancy practice Jackson Stephen LLP:

“There is no doubt that Robbie is one of the hardest working sports professionals in the UK. He is rarely out of the media spotlight what with his punditry work, newspaper columns and lycra clad manoeuvres following his SCD appearances. But relying on always being able to work to maintain a lifestyle is dangerous. Robbie should know that it only takes one false move in the media and he may never work again. Such a risky strategy should be balanced with a contingency plan to cover some income for a period of time in the event of catastrophe.”

“I’m a definitely a spender,” the former Status Quo guitarist Rick Parfitt told The Telegraph in January. “ I’ve never been one to save. I live for the moment and I’m fairly extravagant when it comes to people around me. In the past, I could not resist buying cars. I had a stable full of them – American cars, sport cars, limousines, everything. I spent hundreds of thousands on them. I had about eight or nine at any one time. The cars were just strewn all over the drive. I’d come out every morning, look at the weather and think, what car should I drive today?

Advice from Jasmine Birtles, founder of

“Rick and other ageing rockers wouldn’t need to keep touring if they cut back on their spending and put the money instead into solid investments that grow over time and give them a regular income. It’s nice to be in a position to spend on the things you love but it’s a bit pointless spending so much that you have to keep working just to feed your spending habit. I always tell people to think about what they love and spend on that but save on things that don’t matter so much so that you can put money into savings and investments to work for you.”

“I am an unashamed spender,” former Blue Peter presenter Janet Ellis told The Telegraph. “I love shopping and I love the idea of a bargain and will shop online or in stores. We have a good lifestyle and don’t deprive ourselves of good holidays. I have in the past maxed out on credit cards and store cards, which I wouldn’t advise anyone doing. It was fun at the time, but in terms of how much you have to repay, it is ludicrous how much they charge.”

Advice from Jo Gornitzki, a spokesperson for

“As any girl knows there's nothing better than a bit of retail therapy every now and then. But the former Blue Peter presenter should be wary of maxing out on her cards. Credit cards are great - used in the right way. Used wrongly and they can end up costing you a fortune and in a mess that sticky back plastic just can't fix.”

“I’m definitely a spender, although I’m not an impulsive spender,” the James Bond actor Roger Moore revealed to The Sunday Times. “If I go shopping, I usually know what I want before I go out. I’m not a very good saver because the lessons my father tried to instil in me about taking care of money had the opposite effect. I carry cash in my pocket as I always like to have it to hand, which means it also disappears easily as I spend it more quickly.”

Advice from Kirsty MacDonald, spokesperson for accountancy practice Jackson Stephen LLP:

“As James Bond, Roger Moore became iconic as a smooth operator. But there is nothing smooth about the way he is handling his cash here. There seems to be no control over it at all. Whilst it’s hard to be sympathetic with multimillionaire film stars, Roger’s cash leakages are probably losing him a lot more than he realises.“

“I've got some savings for a rainy day, but I don't bother looking to see if I might get a better interest rate elsewhere,” the comedian Justin Lee Collins revealed in an interview with The Telegraph. “I don't have the time or the inclination to shop around at the moment.”

Advice from Jasmine Birtles, founder of

“The sad thing is that Justin is at an age where even relatively small amounts of money put into a good investment like stocks and shares will grow into something really impressive in later life. The younger you are, the more time your investments have to grow and so the bigger they will be when you retire.

“The earning-power of a comedian can be volatile so it’s helpful to have a serious cash cushion to dip into in the bad times and help invest in your career to push it one when it seems to be faltering. It’s true that shopping around for a better savings rate right now can seem pointless but if you’re willing to tie your money up for a few years there are some good deals to be had, particularly in the peer-to-peer companies like Zopa, Ratesetter and Funding Circle. You can get, on average, between 4.5 and 5.5% with those at the moment, which is significantly better than ordinary savings accounts.”

“I’m definitely a spender,” the international playboy Howard Marks recently told The Telegraph. “When I was growing up I wondered what it would be like to win the pools. The prize money was something like £75,000. Later I had much more than that, with cardboard boxes of cash under my bed. I was very, very flash with my spending. I would fly first class, stay in five-star hotels, buy fast cars, big cars. I don't regret investing more wisely - I enjoyed it all.

Advice from Jo Gornitzki, a spokesperson for

“While I don't blame Howard for splashing his cash, the former drug smuggler and author should make sure his fortune won't go up in smoke. Yes, you should enjoy your money, but also make sure you have enough to last in old age.”

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