ISAsApr 6 2017

Which providers are offering the Lisa and is there demand?

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Which providers are offering the Lisa and is there demand?

In his last Budget as chancellor, George Osborne outlined the launch of the Lifetime Isa.

But since then, the government only confirmed the Lifetime Isa would go ahead late last year and it took until March 2017 for HMRC and the FCA to publish its final guidance on what the Lisa will look like.

As a result, only a handful of providers have confirmed they are planning to offer the Lisa this year and only four providers have a product available from 6 April.

Lisa or no Lisa?

Hargreaves Lansdown was one of the first to announce its intention to provide the Lifetime Isa.

Danny Cox, head of communications at Hargreaves Lansdown, says: “We expect the HL Lifetime Isa to be the only product available to investors on the first day of the new tax year that offers a full range of funds and shares, and can be managed online, by phone, smartphone and tablet.”

The Share Centre, Scottish Friendly and True Potential have all revealed they will offer stocks and shares Lisas, while Skipton Building Society has been the first provider to commit to offering a cash-only Lisa.

Foresters Friendly Society, meanwhile, will offer its members a Lifetime Isa which will invest in its with profits fund.

Paul Darlow, head of proposition development at Xafinity, explains: “There are two types of Lisa – those enabling you to invest in cash (and earn predictable interest) or those enabling you to invest in stocks and shares, where the return is non-guaranteed and your money is at risk.”

He cautions stocks and shares Lisas are generally not appropriate for those who are looking to invest for only a short period of time. 

“So those people who are looking to buy their first home in three years, say, won’t really have any new options from 6 April 2017,” he adds.

High street offering

Niki Patel, technical consultant at Technical Connection, acknowledges the options for savers who do want to take out a Lisa are limited.

Never before have we seen a savings account that gives such a boost to people saving up to buy their first home.Kris Brewster

“Most major banks will not be offering a Lisa from its launch date in April - Skipton Building Society will offer it from June but other banks appear to be uncertain as to whether they will offer it at a later date,” she says.

“There are some investment platforms which will consider offering the Lifetime Isa although, aside from Hargreaves Lansdown. For most it will not be available immediately from 6 April 2017.”

Among the providers which have chosen to get a Lifetime Isa to market, the feeling is the product will be valuable to those with an objective of buying a first home in the next five years or so.

Kris Brewster, head of products at Skipton, suggests: “Never before have we seen a savings account that gives such a boost to people saving up to buy their first home.

“As a mutual, offering a Lifetime Isa to help people save for their own home and future is the right thing to do.”

Notably, none of the high street banks have neither confirmed nor denied they will be joining the likes of The Share Centre and True Potential in offering a Lisa.

Limited demand

Why have so many providers held back from committing to providing the latest type of Isa?

Rachel Vahey, product technical manager at Nucleus Financial, attributes this in part to the haste in which it has been introduced.

“But there also appears to be limited demand from consumers at this stage,” she observes.

“Various industry surveys have shown awareness of the new product is low, and even among those who do know about it, few are interested in starting to save in it.”

She adds: “Although the Treasury won’t have a separate budget for marketing the Lisa, it does intend to give factual information about Lisa online, as well as using government and free communication channels to raise awareness of the product.”

When it comes to demand, there are undoubtedly many millennials who comfortably fall into the 18 to 39 age group the Lifetime Isa is aimed at who require help in trying to save to buy a first home.

In terms of demand, some people will benefit from using Lisas but take-up levels will depend to a certain extent on educating people of the features and restrictions of Lisas.Martin Jarvis

According to the government’s Social Mobility Commission, the proportion of first-time buyers in England relying on the so-called Bank of Mum and Dad has reached 34 per cent.

The figures are stark - in 1990, 39 per cent of those aged between 20 and 24 years old were able to buy their own home but just over 10 per cent managed to do so in 2015.

Mr Darlow believes there will be demand for the Lisa, on the basis: “if nothing else an, Isa has a good image and people are attracted to the name. ‘Free money’ from the government is always attractive as well”.

But if only a few providers are prepared to offer the Lisa, then awareness will likely remain low among those it has been designed to help, particularly as the government has stated it will not be marketing the Lifetime Isa, saying it will be up to product providers to advertise these savings products.

But there should also be demand, albeit from the upper end of the age range, who want to start putting aside money to build a pension pot.

Savings education

This is where some of the confusion lies though, as many in the industry are concerned those choosing to save for retirement through a Lisa may do so at the expense of their workplace pension.

Jon Greer, pensions expert at Old Mutual Wealth, which says it is taking a “watching brief” on the Lifetime Isa, suggests: “In its current guise, the Lifetime Isa will be used primarily to save towards a first home. Although some may use it to save for old-age, pensions are still the best retirement savings vehicle for the majority.”

It seems there are many others in the industry watching what happens when the Lifetime Isa becomes available on the 6 April and whether demand is met or indeed exceeds expectations.

What may be needed is more education on what the Lifetime Isa offers and how it can help people with various savings needs – whether that’s saving for a property or longer term planning for retirement.

“In terms of demand, some people will benefit from using Lisas but take-up levels will depend to a certain extent on educating people of the features and restrictions of Lisas,” notes Martin Jarvis, associate consultant at Mattioli Woods.

Some in the industry have also expressed concerns that recent tweaking to Isas may be putting people off investing in any of the new Isa products, fearing these will be replaced by other, alternative Isas in time.

There is more complexity around Isas now than ever but there is also ever growing demand for simple savings vehicles.

The long-term success of the Lisa may depend on whether more banks, building societies and investment platforms decide to launch either a cash or a stocks and shares version of the product.

eleanor.duncan@ft.com