Is the Lifetime ISA for you?

The Lifetime ISA (LISA) became available to investors under the age of 40 from 6 April 2017. The design of the account has specifically been for a dual purpose:

1. to provide a deposit for a first home (worth up to £450,000) and/or;

2. to save for retirement

The LISA doesn’t have to be put in place by a regulated financial advisor and will be available directly on a non-advised basis from ISA providers, as essentially it is an extension of the popular ISA but with restrictions which make it more complex. Many prospective investors may choose to seek financial advice.

Each tax year you can save a maximum of £4,000 into a LISA and this forms part of the overall ISA annual allowance, which increases to £20,000 in April 2017. We covered the highlights in our previous article ‘Lifetime ISA – the good, the bad and the ugly’ which you can read here.

Saving for retirement

If you plan on using the LISA to save for your retirement, unlike a pension no employer matched contributions will be allowed. If you choose to forego a pension from your employer in favour of a LISA then you will miss out on valuable additional payments which a pension arrangement can specifically benefit from. Those who are self employed could benefit from considering the LISA, as they do not have an employer so cannot benefit from additional payments.

Depending upon your earnings, the amount that you can invest into a pension is usually much higher than that allowed for the LISA, so this should be taken into account. Additionally, as the LISA is simply an ISA, savings held could be taken into account and impact on any future means-tested state benefit entitlement. Pension arrangements do not affect means-tested entitlements.

As an independent financial advisory firm, we believe that using a LISA in addition to other savings methods is welcome means of taking advantage of bonuses and allowances made available by the Government. It’s worth remembering that your overall financial situation may change over time, so it’s important to keep your arrangements under review on a regular basis which a financial adviser can help you do.

Where you are invested in stocks and shares your capital is at risk and you may get back less than you originally invested. Additionally, there are circumstances in which an early withdrawal charge could apply to a LISA, which may not apply to other arrangements and could mean that you receive less than you may have paid in.