Free money from the government - what's not to like? That is exactly what you are getting with the new tax-free Lifetime Isa, or Lisa, which launched on Thursday. So why does it look dead on arrival?
Okay, it isn't free money for everybody. The new savings top-up is only open to 18-39 year-olds, but that is still a lot of people. The Lisa gives younger savers a generous government-funded bonus to help them build a big enough deposit to climb onto today's crazy property ladder. They can put away up to £4,000 a year and in return get a bonus worth 25% of the money they save, giving a maximum £1,000 a year. It forms part of your overall £20,000 Isa allowance.
Better still, once you have opened an account, you can keep claiming that bonus on money you pay in until age 50. Somebody who opened a lifetime Isa on their 18th birthday and contributed the maximum £4,000 every year until age 50 would get a total bonus of £32,000 under current rules, which is a lot of money.
Once in a Lifetime Isa
That looks like the savings opportunity of a lifetime so what went wrong? First, most people simply don't understand it. Isas are getting ever more complicated, with the basic choice of cash and stocks and shares Isas further complicated by the new Innovative Isa, the Junior Isa and the Help to Buy Isa. That one is a forerunner of the Lisa, and also aimed at helping first-time buyers save a deposit. I would like to explain their similarities and differences, but the internet isn't big enough.
Lisa rules are sufficiently complicated on their own. The scheme is designed to help people buy their first home, subject to strict rules. Purchases must not cost more than £250,000 outside London, or £450,000 in the capital. Savers will be disqualified if they have ever owned a property before, even a part share of an inherited property inside or outside the UK, and cannot use the money for an investment property.
Lack of choice
Alternatively, you can save the money tax-free for retirement, but you cannot touch it before age 60, otherwise you will lose a stinging 25% of your pot, including any growth. I would like to take the opportunity to discuss the pros and cons of saving for retirement in a Lisa against a pension, but the internet still does not have enough pages.
Another reason Lisa looks like a dud is that so few companies are offering it. The big banks cannot be bothered. So far, only Hargreaves Lansdown, Nutmeg and The Share Centre have produced an investment Lisa at launch, although AJ Bell, Fidelity and Charles Stanley Direct are set to follow.
The time of your life
Now this is a shame, because £1,000 a year from the government is not to be sniffed at. If you - or a family member - were born either on or after April 7 1977, then either use it or lose it. Just don't go mad trying to understand it.
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