The introduction of the Lifetime ISA, as first proposed by the Centre for Policy Studies, is a triumph for savers, Generation Y in particular, and the continued supremacy of the UK’s financial services industry.
However the Government must now act to ensure that the full benefits of the Lifetime ISA can be realised.
In a new report The Lifetime ISA: Potential Next Steps, published by the Centre for Policy Studies on Saturday 2 April, Michael Johnson sets out six specific proposals to broaden the appeal of the Lifetime ISA, summarised below:
- Double the contributions bonus rate from 25% to 50%.
- Double the contributions cap (to £8,000).
- Introduce a default fund.
- Build a bridge with Cash ISAs, to encourage a culture of “investing” rather than cash “saving”.
- Assimilate today’s Child Trust Funds and Junior ISAs into the Lifetime ISA, to simplify the savings landscape for children.
- Introduce stock dividends as the default (i.e. rather than cash, subject to availability), to help savers harness the positive power of compounding.
Michael Johnson comments:
“With its upfront incentive and ready access to funds, the Lifetime ISA combines within a single savings vehicle some of the attributes of today’s ISAs with those of pensions savings: a savings chameleon. Crucially, the saver, not the industry, will be in control. The tax treatment of pre-60 withdrawals will be ISA-like (bar the 5% penalty), whereas post-60 withdrawals will be tax-free and permit the saver to retain the upfront incentive.
The Lifetime ISA should provide some competition to the private pensions arena. But, hopefully, this is only the first step towards merging the disparate worlds of “pensions saving” and “saving” into a single, coherent framework. Ideally, a Workplace ISA, encompassed in the auto-enrolment legislation, will similarly provide competition to occupational pensions.”
Click here to read the full report.