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The not in our lifetime ISAs!

Only two companies will be ready to launch the government's new lifetime ISAs next April, with others saying they need more time.

The not in our lifetime ISAs!

Savers hoping to put their money into the new lifetime ISA when they launch in April may have few providers to choose from as companies struggle to put the right systems in place.

Although Hargreaves Lansdown and AJ Bell have said they will be ready to launch a lifetime ISA next April, Standard Life, Aegon and Nationwide building society have all confirmed they won't be ready to offer the new account and others are thought to be in a similar situation.

The government hopes the new ISA will encourage young people to save for both a house and retirement. Those aged under 40 will be eligible to open one of the accounts and to receive a 25% bonus saved each year on maximum savings of £4,000, meaning a maximum £1,000 bonus.

If the savings are accessed before age 60 unless to purchase a first home worth £450,000 or less, the saver will forfeit the bonus and any interest made on it, suffering a 5% charge on top.

There is expected to be a huge appetite for the lifetime ISA, especially considering the 4,000 people with Help to Buy ISAs can also roll their savings into a lifetime ISA. Help to Buy ISAs offer £50 for every £200 saved up to a maximum of £3,000.

However, the savings industry may not be able to cope with the demand. Leigh Pegrum, a manager at PricewaterhouseCoopers, told a meeting of the Tax Incentivised Savings Association: ‘We are just not going to be ready.

‘Hargreaves Lansdown are...out there as the ones that are ready.’

She said the rapid changes in legislation and the introduction of the new ISA means providers have struggled to keep up.

‘There have been so many changes in the last two years and we really want people to save,’ she said.

There are also a number of unanswered questions about how the lifetime ISA will work in practice and whether savers will have to self-certify that they are eligible to have one of the new ISAs.

Those savers who do open an account in April may be disappointed to learn they will not receive their government bonus for a year. Even if a person has £4,000 to contribute in April, they will not get the £1,000 up until the following year.

Sue Campbell of administration platform IFDS, said payment could be delayed by almost 18 months.

The government has said it will pay bonuses annually until providers have time to introduce monthly bonuses into their systems, along with the paperwork that goes with them, but Campbell said this will lead to a ‘fragmented experience’ for savers.

‘In the first year you will not be able to draw the money to buy a house and [also] in the first year people have the expectation that they can purchase a house in April and have the £1,000 [bonus] but that is probably not the case,’ said Campbell.
Instead the monthly bonus will be paid from April 2018, which a Treasury official said would give companies time to put their systems in place.

Ideally everything would work from April 2017 but ‘moving to a monthly bonus was complex’, the official said.

Tom McPhail, head of pensions at Hargreaves Lansdown, told the meeting that its figures showed the number of investors interested in opening a lifetime ISA was in ‘five figures’ and of their customers who were eligible for a lifetime ISA, half wanted to invest in one.

McPhail said providers would have to offer investors the option of ‘monthly contributions, contributing lump sums and random payments’ to ensure they make the most of their £4,000 allowance.

People in their 30s who wish to use the lifetime ISA should ensure they start saving as early as they can as the government has no plans to increase the age of eligibility above 40.

The Treasury official said the government set the level to ensure those who are close to retirement do not wash money through a lifetime ISA, picking up a government bonus at the last minute before they retire.

‘There will be winners and losers,’ he said. ‘40 was the right point to say to people use it or lose it. It is good to save now otherwise you cannot open one [above 40]. We want people to have a decent run [at saving] and have a decent size pot and someone saving £5,000 [just before retirement] is not fulfilling the aim [of the lifetime ISA] to provide extra retirement income.’

1 comment so far. Why not have your say?

Hampshire cynic.

Oct 10, 2016 at 16:45

Well done Hargreaves Lansdown and Fidelity, and shame on the rest of the industry.

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