The Isa family is to swell its ranks come April with the inauguration of a new and somewhat contentious tax-free savings mechanism – billed to help save the savings woes of the younger generation.
Plans to introduce the product under the individual savings account label have been green-lighted for an 6 April launch. However, savers hoping to open a Lisa account at any of the UK’s household name banks at launch look set to be disappointed.
In fact, both Santander and RBS have announced they have no intention to launch an account – although the latter said it may revise its position in the future.
Barclays and HSBC said they are in the process of sifting through the Financial Conduct Authority’s final guidance guidelines product.
A spokesperson for Lloyds Banking Group (which includes Bank of Scotland, Halifax and Lloyds Bank), said: “As a longstanding advocate of the portability of Isas and the savings opportunities they provide for customers, we are continuing to work closely with the regulatory bodies as part of their industry consultations around Lifetime Isas and will review our participation when regulations are finalised.”
Nationwide, the UK's largest building society, was one of the first providers to announced that it had no plans in entering the Lisa market – claiming that the product is too complicated.
The number of providers in a position to offer the Lisa will be small at launch, but is likely to increase as the tax year progresses.
Robin Sainty, chartered financial planner at Norwich-based Nurture Financial Planning, said: “It is embarrassing for the government really. What this shows is there is little appetite among providers to offer the product. The Lisa is another example of politicians projecting what they think is a great idea in areas they have no technical competence in and expecting somebody else to take the idea and make it work.
“Most providers are probably considering whether there is a lot of money to be made by offering the Lisa or whether it is at risk of becoming the next mis-selling scandal.”
Nevertheless, both Hargreaves Lansdown and Nutmeg are among a small pool of providers that are set to offer a Lisa product from day one.
Even then, both companies will offer the stocks and shares version – meaning the capital put into the account is subject to investment risk.
More recently, Scottish Friendly confirmed it will offer a Lisa as part of an “integrated Isa-Lisa proposition”, which targets the low end of the market.
On the surface, the Lisa appears to be a no-brainer for individuals saving to purchase their first home or for retirement.
The savings account for those aged between 18 and 40 is capped at £4,000 with a 25 per cent bonus of up to £1,000 per year. Because those eligible can continue paying into the Lisa up until the age of 50, they can amass a maximum of £32,000 in government bonus.
This is more generous than the Help to Buy Isa, which launched in 2015 and offers a maximum bonus of £3,000.
However, in its consultation paper on Lisa, unveiled in November last year, the FCA warned that customers may not understand the repercussions of early withdrawal.
Savers face a stiff 25 per cent exit penalty – although this will only come into affect in April 2018.
Carol Knight, chief operations officer at the Tax Incentivised Savings Association (Tisa), said: “We have argued from the outset that the government penalty charge on unauthorised withdrawals from a Lisa is unfair. It is unnecessary as a deterrent, introduces an additional burden, particularly for those on low incomes and those who need access to their savings in the event of an unforeseen event, and may erode the concept of Isa being a transparent, easy-to-understand savings vehicle.
“We’d also go further and think that the Lisa would be improved if the scope of qualifying events that don’t trigger the withdrawal of the bonus and penalty charge is widened to include redundancy, long-term sickness and next-house purchase.”
The City watchdog also flagged that investors may choose to ditch their workplace pension scheme to take advantage of the generous government bonus offer via the Lisa.
In a policy statement published earlier this month, the regulator agreed that it should amend the risk warnings set out in the consultation paper. The paper will include two further risks.
The first is the risk of investors losing out on employer’s pension contributions where they have a personal pension and there is an employer matching contribution.
Secondly, that investors may not consider the impact of taking out a Lisa on means-tested state benefits as opposed to saving in a pension.
Jon Greer, pensions expert at Old Mutual Wealth, which does not plan to offer the Lisa, said the additional risk warnings illustrates the Lisa is a “muddied hybrid product" that confuses the savings landscape.
He said: “The Lisa is a complex product and those buying it may not fully understand it.
“While the product has been positioned as the answer to the increasing saving woes of younger generations, it still remains less than clear who the Lisa will really serve. It is somewhat unlikely that millennials and those after them will be able to fund the full £4,000 per year necessary to get the maximum government top-up alongside workplace pension saving.
“Plus whether or not the Lisa is used for retirement remains to be seen. A pension is a better deal for the vast majority of people and it remains to be seen whether risk warnings prevent the Lisa detracting from the successful auto-enrolment initiative where employer contributions can prove to be extremely valuable.”
Some industry experts have called on the FCA to mandate financial advice for the Lisa, given the complexity of the product and different considerations to take into account – particularly for consumers contemplating using the product for retirement savings.
Although this is not forthcoming, a school of thought argues the advent of the Lisa could become another revenue stream for intermediaries.
Mr Sainty disagreed. He said: “In practice, people will call us [advisers] seeking free guidance on the Lisa. Once you give it to them, you are unlikely to ever hear from them again.
“Also, financial advice does not come cheap these days, yet the product is aimed at those who struggle to save. We are a business at the end of the day and we have to ensure that we charge enough to cover the basic cost of advice.”
Ms Knight said the plethora of Isa options following the Lisa, as well as Flexible Isas and the Innovative Finance Isa, have added a degree of complexity to the tax-free savings landscape.
What is more, she called for the rule that restricts consumers to being able to only open one Isa in each tax year to be scrapped.
She said: “By making the only requirement on customers to invest no more than the annual subscription limit it makes Isas simpler to understand and has the added bonus of giving people more choice.”
Myron Jobson is a features writer of Financial Adviser
Key points
The new Lisa will launch in April.
It is capped at £4,000 saving a year, with a £1,000 top up.
Some providers are reluctant to offer the product.
