The Chancellor announced further support for savers with a real rabbit out of the hat in the spring Budget 2016. As well as announcing a 31% increase to the ISA allowance from £15,240 to £20,000 with effect from April 2017, he also announced a new Lifetime ISA which will be introduced in April 2017.
Following the announcement earlier in the week on the Help to Save scheme, to support those on some form of income support, so potentially struggling to make ends meet let alone save, these latest incentives announced today seem frankly a little more useful.
So what's the Lifetime ISA all about? From 6th April 2017 anyone between the age of 18 and 40 will be able to save up to £4,000 each year until the age of 50 and receive a 25% government bonus, which will be added to the account annually. The money can either be used for a deposit on their first home (up to a maximum value of £450,000) or for their retirement. However, if it's for the latter then access is restricted until the age of 60, or you will forfeit the bonus. You can save as little or as much as you want each month, but only up to the maximum £4,000 a year.
If you're saving for retirement and withdraw the money early, you will lose the bonus and pay a 5% charge.
The account has been designed for younger savers who may be struggling to save for a deposit on their first home and/or save for their retirement. Those currently saving into a Help to Buy ISA can either transfer their proceeds into a Lifetime ISA or continue saving into both but if you do this, you’ll only be able to use the bonus on one of the accounts to buy a house.
Any contributions made into any of the different ISAs available will count towards your overall annual ISA allowance which, as mentioned above, will be £20,000 from April 2017.
We have a free fact sheet you can download for full details on the new Lifetime ISA but remember, these accounts won't be available until April 2017.
The Lifetime ISA appears to be a good thing but savers would be wise to seek advice from an Independent Financial Adviser for bespoke retirement planning, as using just the Lifetime ISA may not be the best option available. Call one of our Savings Advisers on 0800 321 3581 for more information.