Director warns LISA 'aiming to muscle out pensions'

The Lifetime ISA appears to be “aiming to muscle out pensions”, a savings expert says, after new details were revealed. The Government released more information yesterday about the plans for the LISA, including confirmation that the 25% government bonus can be claimed monthly from 2018.Neil Lovatt, product director at Scottish Friendly, said: “The confirmation that tax relief will be paid monthly means that the product is mirroring pensions even more.“This not only looks like a vote of confidence in the LISA but a further indication that they are here to stay and they are aiming to muscle out pensions.”The previous proposal for the bonus to be paid only after the end of each tax year, coupled with the charges levied on customers who withdraw early other than for house purchase, would have created huge disincentives, according to Aegon.Steven Cameron, pensions director at Aegon, said: “The Treasury has listened to the industry and will pay the LISA bonus on a monthly basis from the 2018 / 19 tax year. The earlier savers receive their bonus, the sooner it can start earning investment growth or interest.“If the bonus had been paid only after the end of each tax year, some individuals who withdrew their funds mid-tax year could have faced a 25% loss on contributions which had not benefitted from the Government bonus. We’re pleased the Treasury has removed this major design flaw.”David Harrison, True Potential managing partner, said: “Once it is launched, the potential to help close the savings gap is huge. We need more details from FCA now but if they are forthcoming sooner rather than later, True Potential will be offering the Lisa in 2017.”Danny Cox, Chartered Financial Planner at Hargreaves Lansdown, pointed out that unlike Help 2 Buy ISA, the bonus will be available for exchange of contracts, not completion.He said: “Making the LISA values plus bonus available at exchange of contracts will help first time buyers’ cash flow and it is a better system than the Help 2 Buy ISA as the cash will be ready when needed. First time buyers need to take into account the timetable for the first annual bonus in their planning otherwise they risk a shortfall at exactly the wrong time.“We expect considerable interest from the 500,000 or so Help 2 Buy ISA holders, looking to transfer their values across to LISA in 2017/18. This will give them wider choice, the benefit of stocks and shares options, higher subscription levels and bonuses paid sooner.”He believes that the “door has been left open to add borrowing as an option” which he said would complicate it and “potentially risk savers bypassing the penalty to access their savings plus bonus”.He added: “There remains opportunities for a simplification of the ISA range which would help simplify savings decisions and should lead to higher savings rates.”

Director warns LISA 'aiming to muscle out pensions'

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