Lifetime ISA - A complement to pension, not a replacement
Hargreaves Lansdown research shows that the vast majority of people said they would use the Lifetime ISA as well as a pension. Lifetime ISA already has strong name awareness and pent up demand.
Danny Cox, Chartered Financial Planner, Hargreaves Lansdown;
“The rapid take up of Help to Buy ISA shows that savings incentives for first time buyers work exceptionally well, and as a nation we need to get more people saving and investing.
We have had 17 years of debating whether ISA or pension is best, and the answer is, in most cases, both. People have a range of short, medium and long term goals, and financial products with different characteristics complement each other.
LISA will appeal to a wide range of savers and investors aged under 40 and as our analysis shows, will be used sensibly as an addition to other pension savings and not a replacement.
It’s clear the Treasury has listened to industry in the development of the LISA workings and we now have a framework which will be highly attractive to the under 40’s.
We must remember that people can and should be trusted to do the right thing with their own money. Just look at the pension freedoms and the vast majority making very sensible decisions despite the doomsayers.
The timescale between final rules and launch is tight but this was the case with Junior ISA and Help 2 Buy ISA. There will be providers ready for April 2017, such as Hargreaves Lansdown and there is no doubt the LISA could help get people into the savings habit.”
Meet HenryHenry is aged 27 and in his first job from university. He is a history graduate and an HL employee, and has been auto-enrolled into his workplace pension scheme.
He is a good person to speak to about saving for his future as he is a potential candidate for the new LISA. He likes the tax reliefs available from pensions and the employer contribution to his workplace pension is free money not to be ignored. However for other savings, he wants more flexibility. For now, Henry wants access to money when he wants it and not from age 55. His prime objective today is to buy property and he has already started saving into a help to buy ISA. Henry thinks that LISA will be a good option for him.
“I like the flexibility of ISAs and the fact that if the government changes the rules to make them less attractive in the future, I can just take the money out and put it elsewhere. I also like the safety net of knowing that if I need the money for emergencies, I can access it at any time.
Retirement is a long way off and I’ve started saving for this through my workplace pension. What I don’t like about pensions is the inaccessibility, for now at least. A pension doesn’t help me save for my short term goals but a LISA will. In the future my priorities might change and I can then save more in other directions.”
Looking aheadThere are opportunities for the government to simplify the range of different ISAs which would help simplify savings decisions and lead to higher savings rates.
NOTES TO EDITORS
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