Platforms could give the government’s new Lifetime Isa the cold shoulder as a lot of work for very low inflows, Nucleus’ technical manager has said, revealing his firm’s reservations about the product.
Available only to those under 40, with more generous terms and much more flexibility than traditional savings products, the Lifetime Isa is designed to get young people saving, with a 25 per cent government bonus to savers using their pot to buy their own home or save for retirement.
Savers who invest in the new Isa must wait until they are 60 to use it for retirement, or can withdraw the funds at any time to buy a home up to a purchase value of £450,000.
But early withdrawal, unless within specific criteria, will mean savers are hit with a hefty 5 per cent penalty, the loss of the 25 per cent bonus and interest accrued.
Its introduction is subject to a consultation.
Jon Gwinnett said the way the features of the product will make it extremely complicated to build and administer.
“I am a fan of the idea of the Lisa, giving 20-somethings free money, but I am not a fan of building a whole lot of complexity into the back end of it,” he said.
“The 5 per cent tax charge looks like a difficult think to administer. It looks a lot more like a pension once you have built in all those ancillaries. I also don’t understand why there is an arbitrary price limit if you want to use it to buy a house.
“I don’t know whether we will offer it, to be honest. We are thinking about it and I guess that will come down to what the details look like and whether we think we can do it in a cost-effective way.”
Mr Gwinnett also doubted whether enough product providers will offer the new Isa product to make it an interesting market, adding “it will bring relatively low inflows for the complexity involved”.
Pointing to figures in the March Budget, he said they suggested HM Treasury was not expecting a high take up of the Lifetime Isa, based on the amount it had set aside to cover the cost of offering it.
According to the 2016 Budget, the government will spend £590m on both the Lifetime Isa and the increase of the Isa limit to £20,000 in 2019/20. As a comparison, in the same year the Treasury had forecast to spend £835m on the Help to Buy Isa.
Hargreaves Lansdown was among the first to confirm its interest in offering the Lifetime Isa, which will be launched in April 2017.
Standard Life has also committed to offering the Lifetime Isa on its wrap and has begun analysis on how it can be integrated into the platform.
The Lifetime Isa, for those under 40, offers a 25 per cent government bonus to savers using their pot to buy their own home or save for retirement.
Savers who invest in the new Isa must wait until they are 60 to use it for retirement, or can withdraw the funds at any time to buy a home up to a purchase value of £450,000.
But early withdrawal, unless within specific criteria, will mean savers are hit with a hefty 5 per cent penalty, the loss of the 25 per cent bonus and interest accrued.
Its introduction is subject to a consultation.
But Mr Gwinnet said the product failed to solve the conundrum of why people don’t save for retirement, which is that they don’t have enough spare income.
