ISAsMay 13 2019

Government urged to rethink Lifetime Isa limit

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Government urged to rethink Lifetime Isa limit

The government has been urged to remove the transfer limit on its Lifetime Isa to encourage more people to switch to the product.

The Lisa was introduced in April last year and is aimed at a younger generation of savers who want to save for retirement or to buy a first home.

It allows those aged between 18 and 39 to save up to £4,000 each tax year into the vehicle and receive a government bonus of 25 per cent of the contribution.

Financial services firm OneFamily said a problem occurs for those who took out a Help to Buy Isa, launched in 2015, who want to move their savings into its improved long-term replacement, the Lisa.

Customers who took out a Help to Buy Isa and have saved the full amount would now have £9,400, plus interest, in their Isa and research from OneFamily shows more than a third of such savers want to move their savings to a Lisa.

But the government will only allow customers to transfer £4,000 per year into the Lifetime Isa, meaning consumers have to decide between splitting their input over three years or sticking with the less fruitful Help to Buy Isa.

Nici Audhlam-Gardiner, managing director of OneFamily’s Lifetime Isa, said: "By not allowing Help to Buy Isa customers to transfer their full savings into the Lifetime Isa, the government is holding customers back from making the most of the greater benefits and flexibility available on the new product.

"The Help to Buy Isa was always designed to be a short-term product, whereas the Lifetime Isa means young people are not only saving towards that all important first home purchase but can keep the account open and give their retirement savings a much-needed boost too. 

"Additionally, the Lifetime Isa can be used, its entirety, for a first-time home deposit, whereas the Help to Buy Isa bonus can only be claimed on completion of a first home purchase."

Last year, MPs called for the Lisa to be abolished saying it was "too complex and not popular among young savers" as sales failed to live up to government expectations.

But last week, Michael Johnson, independent research fellow at the Centre for Policy Studies, claimed a Lisa was better for low earning millennials than a standard pension pot.

Benefits of the Lisa compared to the Help to Buy Isa include a higher maximum yearly contribution — £4,000 instead of £2,400 — and the fact the government pays in its 25 per cent bonus in monthly instalments, rather than upon completion of a house purchase, OneFamily stated.

Consumers can also choose between a more high risk, high reward stocks and shares Isa or a cash Isa within the Lisa plan, whereas the Help to Buy scheme only offers a cash savings account.

Importantly, the maximum bonus a Help to Buy Isa can offer is £3,000 — less than 10 per cent of the Lisa’s maximum £32,000.

Further research from OneFamily showed that 29 per cent of those with money in a Help to Buy Isa said they didn’t want to manage two accounts simultaneously and more than a third of consumers would transfer if they could deposit the full amount into the Lisa in one go.

Anna Bowes, co-founder of Savings Champion, said it was generally agreed the Lisa was the better option for first-time buyers than the Help to Buy option.

She said: "Once again, too many rules and options can make it very hard for savers to make the right choice. 

"They may have opted for a Help to Buy Isa either before the Lisa was introduced or in error, as they were not aware of the differences. 

"Savers should be able to switch if it becomes clear the Lisa would be a better choice. I can’t really see any need for there to be a restriction on how much can be transferred and when."

Ms Bowes added the industry had seen restrictions on the amount of money that could be deposited into a cash Isa or the ability to transfer between different types, but noted that these had now been rectified to make the Isa fairer for all and less complex.

She added: "So, it would be sensible to extend the simplicity of the transfer rules to the Help to Buy and Lisa as well."

imogen.tew@ft.com

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