The Savings (Government Contribution) Bill 2016-2017, which legislates for the Lifetime individual savings account (Lisa), has now been introduced to the House of Commons, to finalise details in preparation for an April 2017 launch.
The savings vehicle was first unveiled by former Chancellor George Osborne in the March 2016 Budget, aiming to provide a government-supported method by which young people under the age of 40 can save for the long term.
The Lisa will enable individuals to save up to £4,000 each tax year up to the age of 50, and receive a 25% bonus from the government based on the amount paid in. Funds can be used to buy a first home up to the value of £450,000 at any time from 12 months after opening the account, or the savings can be withdrawn after the age of 60 to use during retirement.
The government bonus can be claimed and paid monthly from 2018-19. Savers can withdraw money for purposes other than a first home or retirement income, but this will not include the 25% government bonus and interest accrued on that bonus, and individuals will have to pay a small charge. In the case of a terminal illness, or the death of the account holder, these charges will not apply.
Employers should be considering whether there will be a demand from their workforce for the Lisa, said Fuat Sami, partner at law firm Sackers. He added that checking the age profile of an organisation’s working population will be a useful tool alongside staff surveys to determine employee demand.
The government bonus provides a visible incentive to save, but the Lisa also plasters over problems found in the Help to Buy Isa by delivering the government bonus in monthly instalments, said David Robbins, senior consultant at Willis Towers Watson.
Although gaining interest as a tool to encourage a savings mentality and help individuals save towards home ownership, questions have been raised about the effect the Lisa will have on retirement saving. Sami said: “I think there is a real risk that the Lisa will undermine the whole pensions saving culture that the government has been trying to build up, particularly through auto-enrolment.”
Robbins added that next year’s auto-enrolment review will have to incorporate the potential impact of the Lisa on workplace pensions. “Should employers be allowed or required to automatically enrol people into Lisas instead of pensions?” he said.
Some providers have expressed concern around the short timescale for product development ahead of the Lisa's planned April 2017 launch. For example, as it awaits final details from the Treasury and HM Revenue and Customs and for the Financial Conduct Authority to consult on its regulatory requirements, Aegon has yet to commit to a firm launch date, and Standard Life will not offer the Lisa from April 2017, but does intend to offer it at some point in the future.
