This month's question - Have you started to advise on the Lifetime Isa?
Alistair Cunningham, financial planning director, Wingate FP
It is supremely disappointing that mainstream offerings of Lifetime Isas are conspicuous in their absence. I suspect the prominent adviser platforms and life insurers do not feel they can hold onto assets for sufficiently long to recoup their costs.
But this misses the opportunity Lisas offer higher earners; they are generally inferior to pensions, but with shrinking annual pension allowances due to tapering, what other choices are there?
If we discount first-time buyers, who may well be best placed with cash – due to their investments’ shorter time horizon – anyone under the age of 40 that qualifies for a lifetime Isa may well be investing for at least 20 years. Lisas, which receive the equivalent of 20 per cent basic-rate tax relief, but are tax-free from 60, will be better for nil or basic-rate taxpayers who expect to be at least a basic-rate taxpayer in retirement.
The demographic I am most recommending them for is those who have the minimum pension allowance (£10,000) and plan on maximising pension, Lisa and regular Isa contributions. It’s absurd that the pension net equivalent (including carry forward) now accounts for only £5,500, with Isas potentially being more than £20,000.
I just scrape under the threshold, and now need to strong-arm my mortgage company into giving me an interest-only mortgage. I still get a big benefit from pensions, but like the idea of the government paying off 20 per cent of the capital cost of my mortgage through the Lisa bonus.
Dhawal Chandan, director and chartered FP, Just Financial Group
We are not making any formal recommendations to clients, due to the complete lack of cash Lisa providers available. The Lisa is a definite ’no brainer’ for any first-time buyers looking to get onto the property ladder and the government bonus can come as a welcome boost towards a deposit.
But for anyone saving towards retirement, it does raise serious concerns when compared to pensions. Given that the current providers mainly specialise in investment-based products, we are struggling to advise clients due to the sheer lack of choice.
We view this mainly as a perfect fit for first-time buyers and, due to the very nature of the clientele, their needs in terms of risk capacity, and a timescale for investment that tends to be fairly short – less than five years in most cases – investments in stocks and shares, or any other asset classes except cash, would not be suitable.
Therefore, it would be good if the major banks that are still reviewing final rules and guidance could pull their socks up and bring suitable products into the market.
Since there are no providers up to speed, the government should probably consider getting NS&I to come up with one.