Poor LISA. She’s all dolled up, ready to make her entrance onto the national stage and nobody wants her. She’s the girl at the dance who sits on her own, unloved and ignored.
Today marks the launch of the Lifetime ISA, the government’s flagship savings programme. The LISA is a version of the Individual Savings Account, intended to help first-time buyers and those saving for retirement. It works like this: for every £1,000 saved, the government provides a £250 top-up. People can make annual contributions up to £4,000. Anyone aged between 18 and 39 is eligible, with a cut-off age for contributions of 50. The maximum government bonus is £32,000 and the money has to be used towards a deposit for a first home, or can be accessed from age 60.
Critics say the new product is too complicated, has onerous charges and risks encouraging people to shun pension saving – which is more tax efficient as pensions attract tax relief as well as employer contributions. Others say there are plenty of savings products out there already which do a better job, including the Help to Buy ISA.
And so it comes as little surprise that no high street banks or building societies are currently offering LISAs. In fact, only three providers will sell the LISA this month, and they are all investment platforms which will operate a stocks and shares version only. These are from Hargreaves Lansdown, Nutmeg and the Share Centre and are unlikely to appeal to savers used to cash ISAs.
Elliott Silk, head of employee benefits at Sanlam, said: ‘Is the LISA a bit of a damp squib? It has been a sluggish start to the launch of the LISA, with only three providers launching the product today. All of the three providers who are launching are only offering an investment backed LISA, which is hardly the environment into which a potential first-time buyer wants to put their hard-earned savings when most of them are looking for a risk-free vehicle.
‘The government needs to do more to encourage providers to come to the table with an offering, as there is a fear that consumers will not understand the risks associated with a LISA including the penalties that will apply if money is accessed prior to age 60 without it being used for a deposit on a first-time property purchase. Essentially, the government is encouraging better saving habits for the public and the concept as a whole is a good move. Yet, worries about exit fees and charges have not gone unnoticed, which is preventing many more LISAs coming to market.’
Yvonne Braun, director of long-term savings and protection policy at the Association of British Insurers (ABI), added: ‘The Lifetime ISA will be a very useful savings mechanism for some people but savers should only invest in a LISA if they fully understand how they work. In particular, people should not forego their workplace pension to save for retirement in a LISA as most people will be better off saving into a workplace pension because of the employer contribution.
‘It is key that the LISA does not undermine the success of auto-enrolment in workplace pensions and the ABI urges government to monitor whether the LISA is having an impact on the auto-enrolment programme.’
Helen Nugent is Online Money Editor of The Spectator