The Chancellor’s announcement in the Budget about the future introduction of the Lifetime Isa (Lisa) caught many people unawares. But given his track record of pulling rabbits out of the hat at Budget time I suppose none of us should have been that surprised.
Nor should we be surprised at the reaction – on the one hand the new Lisa has been praised for giving the under 40s an encouragement and incentive to save, while others have been quick to point to the Lisa as ushering in the demise of the current pensions system.
I prefer to take a more pragmatic view. While the Lisa was not one of Tisa’s pre-Budget recommendations to the Treasury, it does incorporate a number of policies that we have been advocating. Firstly, it features a very clear upfront incentive that is described in simple-to-understand terms. Early consumer research on attitudes to the Lisa is already showing that the 25 per cent government top-up is very popular.
Crucially, the Lisa also puts the home at the centre of people’s savings plans. The Lisa can be used for first-time house purchase and in time we expect it to be available for trading up to larger, family-sized houses. It also provides a direct link for young adults between saving for a deposit on their first property and contributing towards a pension plan, effectively allowing people to do both at the same time.
Following on from the introduction of the flexible Isa allowing people to take money out and put it back again, the Lisa will also allow early withdrawals, without the government bonus, at any time. This is likely to tempt many who are undecided about saving and is particularly important for the self-employed, where our research has identified that the volatile nature of their business can often mean they need urgent but temporary access to their savings.
Lastly, we like the inference the Lisa is also giving that 60 is the new 55. We need to extend working lives and those who use the Lisa for retirement saving will have to wait until age 60 to get their hands on the full pot including the Chancellor’s bonus.
So, will the Lisa be popular? I think the under 40s will embrace it, encouraged by the incentive of the government bonus and the behavioural aspects that drive people towards wanting to buy a home of their own. And the ability to continue to contribute to a Lisa after a house purchase will motivate ongoing saving for retirement.
And I expect the Lisa to be popular with advisers and providers too. For advisers it will bring more people into financial planning earlier in their life. By establishing property as a vital part of an individual’s lifetime financial plan, the Lisa effectively becomes a retirement planning tool and opens up the need for ongoing advice.
It is also a huge opportunity for providers. Traditionally, Isas have been sold in the retail market, but even though it is early days, we are hearing a real buzz in workplace savings circles around the Lisa. It opens up possibilities for employers who might want to offer a workplace Lisa into which they make a contribution, perhaps running in tandem with an auto-enrolment plan. Flexibility and employee choice will be the new mantra, mirroring the Government’s ambition. Providers have been presented with a golden opportunity to develop new and innovative products and services that will harness this new-found enthusiasm to save.