Investments  

Advocate: Should the Lifetime Isa be abolished?

Advocate: Should the Lifetime Isa be abolished?

This month's question: Should the Lifetime Isa be abolished?

Yes

Tim Bennett, partner at Killik & Co

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Launched with the aim of simplifying the savings market, by helping both first-time property buyers and retirement savers, the Lisa was underpinned by laudable government intent. But in trying to be all things to all savers it has, ironically, turned out to be a niche vehicle. While useful in certain circumstances, the Lisa is conceptually flawed and riddled with too many small-print risks to ever be a mass-market product. 

The first problem is that saving to buy a property and building a retirement fund are different goals. A person saving a house deposit over the short or medium term should be in cash, whereas anyone saving longer term for retirement should normally take some investment risk. This divergence of aims is hard to reconcile.

There are also specific problems with the way the Lisa works for either group. While the government bonus is attractive, strict restrictions around how it is used to buy property, plus stiff penalties for withdrawing funds outside of the prescribed circumstances, make a close reading of the small print essential.

Meanwhile, retirement savers cannot open a Lisa past the age of 39, nor contribute past the age of 49, which arbitrarily limits who can benefit. For those who do qualify, the fact that an employer does not have to contribute makes a Lisa a poor alternative in most cases to a company pension. Yes, the ability to withdraw all of the Lisa money tax-free on reaching 60 is attractive, but how many savers will trust future governments to honour that deal?

 

No

Jonathan Watts-Lay, director at Wealth at Work

The Lisa is trying to do too many things: help with a first house purchase, while at the same time be a potential savings vehicle for retirement. Instead of ditching the Lisa completely, thought should be given to making it the key savings product to help people save for a deposit to buy their first home only. 

After all, due to the government bonus, the Lisa is an ideal option to help them save for a deposit faster than using a standard savings account as, in essence, the bonus gives a guaranteed 25 per cent return. I doubt many people are saving into a pension at the expense of saving for a deposit on their first home, but by getting into the savings habit early and benefitting from the bonus, they will be able to save for their first home more quickly than would otherwise be the case. This means not only do they get their first home earlier, but having reached that goal sooner they may then be able to allocate more money to other savings vehicles such as pensions earlier. 

There is significant interest in the Lisa for house purchases within the workplace as employers view it as a potential benefit that would appeal to their younger employees, but unfortunately there is a lack of providers. The workplace already supports individuals with various savings vehicles to help them with their short, medium and long-term savings goals. This includes workplace Isas, share schemes and pensions. Such variety allows people to choose a savings method, or a combination of methods, that are the most appropriate for them at a given point in time.