The Treasury’s 25 per cent bonus on Lifetime Isa savings will now be paid on a monthly basis, it has been revealed.
Announced under former chancellor George Osborne’s regime, the property purchase and retirement-oriented savings account, also referred to as the Lisa, was originally designed so savers would receive their bonus on an annual basis.
The change, revealed in an HM Treasury paper in September, comes not long after several pension providers expressed concerns about the yearly bonus, in addition to outlining separate issues with the product.
Richard Parkin, head of pensions policy at Fidelity, said while the Treasury’s announcement of the monthly bonus is “what Fidelity were looking for” from an administrative perspective, it remained imperative for the government to be clear on other aspects of the saving scheme.
One concern shared by a number of providers is whether or not the Treasury has plans to further soften, or even abandon, the hefty 25 per cent penalty fee for early withdrawals.
The HMRC paper also disclosed that the penalty – which does not apply to the terminally ill, those aged over 60, or anyone who uses their savings to buy a property – may be altered slightly in the years following the product’s April 2017 launch to grant immunity for other life events to those who withdraw early.
“I’m not sure it is an effective deterrent”, said Mr Parkin, speaking of the headline 25 per cent penalty, and noting that those who withdraw early already stand to lose the government bonus. “If I had a Lisa that was worth £20,000, [losing] £4,000 after cashing out early [would be] a pretty effective deterrent. Is the fact that I’m now going to lose £5,000, any more effective?” he added.
Danny Cox, chartered financial planner at Hargreaves Lansdown, believes the penalty is “perfectly reasonable” as it is “incentivising people to use the money for property or for retirement”.
Mr Cox added, “What we have seen is that more than 80 per cent of people who understand it will take it out in addition to a pension. It is all about communication and making sure that people who invest savings through you are engaged”.
Mr Parkin noted that Fidelity’s earlier call for a delay to the launch of the Lifetime Isa – based on the earlier plan for bonuses to be paid annually rather than monthly – did not mean the company was opposed to the concept as a whole.
“Fundamentally, we think it is a good product for consumers. People just need to be clear as to what applies when,” he said.
