The new Lifetime Isa – where can you open one and how should you use it?

piggy-bank-with-lifetime-isa-coins

The Lifetime Isa (Lisa) is set to launch on 6 April, but while the majority of under-40s would open a Lisa, only a few providers have actually committed to offering the product at launch.

The Lisa enables those aged under 40 to save up to £4,000 a year, which will be topped up by the government by 25 per cent up to a maximum of £1,000. The money saved can then be put towards a first home or accessed from the age of 60. 

Some 60 per cent of under-40s would consider opening a Lisa, according to research from the Share Centre.  

No cash Lisas in the pipeline so far

However, none of the banks or other providers are offering cash Lisas from the outset, says Susan Hannums, director of independent savings advice specialist Savings Champion.

She says: ‘It’s a really poor show from the banks and building societies: although some have indicated they will offer them, none have actually launched. I believe Skipton have suggested they’ll launch in the summer (in June) and some of the others banks have suggested they’re waiting to see what others do. They could be waiting a long time at this rate. For those looking to save in cash, the Lisa is a real damp squib!’

Therefore, those who want to open a Lisa straightaway can only do so by investing in the stock market. 

It is also possible to transfer a Help-to-Buy Isa (which is a cash-based Isa) into a Lisa, and receive a separate government top-up on those savings during the 2017/18 tax year. But this means that those who want to convert their Help-to-Buy Isa into a Lisa will go from a cash vehicle to a stocks and shares vehicle.

Poor choice of stocks and shares Lisas too 

However, when it comes to stocks and shares Lisas, just two of the seven major platforms surveyed by our sister publication Moneywise will definitely have a Lisa available from 6 April – Hargreaves Lansdown and The Share Centre. 

A further four brokers – AJ Bell, Charles Stanley Direct, Fidelity and Nutmeg – all said they’d be launching a Lisa at various stages from April onwards. More providers are likely to follow in due course.

For example, IG confirmed it will not be offering a Lisa at the start of the 2017/18 tax year but it aims to do so during the latter part of the tax year. John Gordon, business development manager at IG, says: ‘As the government functionality is not ready for monthly top-ups in the Lisa, there is less incentive for an investor to open a Lisa at the start of the new tax year.

‘This is because the government has decided to only pay the top-up for all of the tax year 2017/18 after the end of the tax year. So an investor can still get the Lisa benefit by using their Isa allowance as normal in a stocks and shares Isa wrapper and then as the tax year ends, open a Lisa and move £4,000 of Isa assets into the Lisa, which is allowed in the regulations – and still receive the £1,000 government top-up.’

Pensions still work best for retirement savings

Echoing the findings from the Share Centre, a survey conducted by Hymans Robertson with 1000 UK adults found that 61 per cent of workers under 40 would open a Lisa and, importantly, over two thirds (68 per cent) of them would save into a Lisa alongside a pension. 

This mitigates concerns raised over the fact that those who opt to use a Lisa as a retirement savings vehicle could lose out on valuable employer contributions.

Paul Waters, Partner at Hymans Robertson, further points out that the survey shows most people who plan to open a Lisa would still save more to their pension (49 per cent would save more to a pension while 19 per cent would opt to save more in a Lisa).

He says: ‘If your absolute goal is retirement saving, a pension is generally your best option. Pensions come with strong incentives to save, in the form of upfront tax relief and employer matching contributions for many in the workplace.

‘For higher rate taxpayers the pension tax relief is better than that available in a Lisa. But for any young, very high earners who have reached pension annual or lifetime allowance limits, a Lisa is a good option. Most basic rate taxpayers will benefit from extra contributions from their employer in pension, as well as lower charges – although if they don’t then a Lisa works for them.’


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