Her Majesty the Queen confirmed in her May speech the introduction of the Lifetime Isa under the Lifetime Savings Bill.
Lifetime Isas - nicknamed the Lisa - were announced by chancellor George Osborne in his March 2016 Budget, as part of a package of measures to support young people and get them saving for a home and for a pension.
■ From 6 April 2017, any adult under 40 can open a Lisa and pay in a maximum of £4,000 a year.
■ This will be in addition to a cash or stocks and shares Isa, subject to overall annual Isa investment caps of £20,000. Transfers will be allowed from one Isa into another.
■ For every £4 an investor saves, the government will boost this with £1; so for a full year’s worth of investment, the government will bolster people’s savings with a 25 per cent bonus.
■ Funds can be withdrawn from the Lisa with the government bonus from age 60 for use in retirement.
■ Withdrawals before 60 not for a home will be subject to a 5 per cent levy and a loss of the bonus.
Carol Knight, chief operations officer for the Tax Incentivised Savings Association, said: “This will be a new type of Isa so investors can still subscribe to a stocks & shares, cash and innovative finance Isa in the same tax year.”
According to Richard Donegan, managing director of Selftrade, Lisas are a great addition to the savings landscape.
“We see the 25 per cent government bonus on top of the tax advantages associated with Isas, being an effective way of incentivising people to save towards buying their first home or for their retirement.”
Richard Parkin, head of pension at Fidelity International, agreed they are a good addition: “This will make a meaningful difference for younger savers who value flexibility and for whom the current system of pension tax relief offers little.”
This is especially pertinent, noted Danny Cox, chartered financial planner for Hargreaves Lansdown, given the latest Isa statistics from HM Revenue & Customs, which showed a 16 per cent drop in the numbers of younger adult subscribers in the 2013 to 2014 tax year.
“Falling numbers of younger Isa savers illustrates the necessity of introducing the right incentives through the Lisa to encourage good long-term savings habits,” he stated.
Will it replace a pension?
Many people already use pensions as a form of retirement income. Simon Massey, director of wealth management at MetLife UK, pointed out their research among retirement savers aged 45-plus showed a strong interest in Isas, with 40 per cent planning to use some of their tax-free savings for retirement planning.
Although it looks set to become law, even politicians have expressed concern, saying Lisas should not be taken out at the expense, for example, of the auto-enrolment workplace pensions regime.