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One month on from the Lifetime ISA

One month on from the Lifetime ISA

Category: ISAs

Updated: 12/06/2017
First Published: 04/05/2017

MONEYFACTS ARCHIVE
This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

It's now been four weeks since the Lifetime ISA was officially launched, but have savers embraced it, or are many looking to utlise the various other tax-free savings options available instead? Well, it probably depends on where you look.

Stocks & shares LISA uptake

Let's start by looking at figures from Hargreaves Lansdown, one of the few providers who had a LISA ready to go from the launch date. The product offered was of the stocks & shares variety, which means savers could invest up to the £4,000 maximum in any number of Hargreaves' funds, rather than saving it in cash.

So far, it looks as though there's been a decent uptake: 13,319 HL Lifetime ISAs have been opened, said the provider, with 18% of those opened by customers aged 39. This suggests that those just shy of the 40-years-old cut-off point are keen to "keep the door open for further LISA contributions, with accompanying government bonuses, throughout their forties," said Danny Cox, chartered financial planner at Hargreaves Lansdown.

Indeed, even though a LISA can only be opened by someone under 40, they can continue to make contributions and receive the 25% Government top-up until their 50th birthday, so those who don't mind keeping their money locked away could still benefit from a decade of tax-free savings with an impressive uplift. Additional research from MetLife shows that 38% of under-40s are considering investing in LISAs, highlighting their growing appeal.

"Thousands of younger investors have voted with their feet and selected a Lifetime ISA
in the short time since the new addition to the ISA family became available on 6th April," added Danny. "The LISA may not be widespread in terms of providers yet, but the demand for the new product is clearly there from savers."

Changing priorities?

As yet, there still aren't any cash LISAs available, so anyone looking for the security of cash will have to wait for Skipton BS to launch its product next month, or see who else follows suit. However, there are concerns that if too many people opt for this form of saving, the success of auto-enrolment and the recent pension freedoms could be compromised.

Indeed, around 23% of under-40s said they'll cut back on the amount they invest in their pension in favour of the LISA, according to MetLife, while another 9% will leave their workplace pension scheme altogether. Either one of these options poses concerns for many in the industry, as those who turn their back on a traditional pension are missing out on employer contributions and Government tax relief, which could lead to a notable reduction in eventual income.

"It is very welcome that the Government is encouraging saving and the Lifetime ISA offers generous bonuses, but it is worrying if people are going to ditch pension saving in favour of LISAs," said Simon Massey, wealth management director at MetLife UK. "Pension savings attract tax relief and employers are duty bound to top up contributions.

"People have limited amounts they can afford to save, but it should not be a case of giving up on pensions for LISAs. It is important savers get advice on how best to save for retirement as well as building up a deposit."

Get the best of both worlds

Saving into a LISA can be ideal for those who are saving for their first home, and equally as beneficial to those seeking another savings vehicle for retirement, but it shouldn't be seen as an alternative to a traditional workplace pension. Find out why you really need one here, then read up on the Lifetime ISA to see how you could benefit from it – but just make sure you don't put all your eggs in one basket!

Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.

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