Let us say someone starts saving in a Lifetime Isa because they are attracted to the idea of what seems like free money in the shape of the government bonus. After five years of diligent saving, they find themselves made redundant. They have a mortgage to pay, council tax, utility bills, food bills and they find their deposit account is not going as far as they hoped it would. To make ends meet, they would need to access their Lifetime Isa. But because they are under the age of 60 and not using the money to buy their first house, they would lose the government bonus and have to pay a 5 per cent penalty. While there has been talk of expanding the life events that allow people to access the money without penalty, nothing has emerged yet.
In terms of rules, the one area of Isas that has stayed relatively stable is the Junior Isa, which became available in November 2011. This provides a great planning opportunity for parents to start a nest egg for their children without the tax implications for themselves. At age 16, the child can open their own cash Isa as well, significantly increasing the amount that can be saved for the final two years.
What’s the answer?
My ideal solution would be an I day. This would entail one product or wrapper that can be used for tax-efficient savings in either cash or investments and can be drawn on for any life event. Oh wait, we already have that.
Isas are an attractive planning tool allowing clients to save money each year in a tax-efficient way. With the increase of the adult Isa allowance to £20,000 from April 2017, this is a meaningful amount of money. So why do we need more products on the market, other than to complicate matters even further?
Victoria Groves, senior technical consultant, EQ Investors
Isas were introduced by Gordon Brown in 1999
There are many different Isas available for different savings priorities
The ideal scenario is to have an Isa simplification day