A new financial product hits the street later this week when the Lifetime ISA or LISA launches on the 06 April. This new savings & investment product is only available for the under 40s and offers many attractive features, even though it’s quite complex.
The plan has been introduced to encourage people to save for their first home or retirement. LISA will be a no-brainer for first-time buyers as the state will add a 25% bonus on top of what is saved – meaning up to £32,000 of free cash. For retirement savings, it works the same way, but whether it beats a pension or not is a much trickier issue, as the scheme isn’t supporting by matching employer contributions.
You can save up to £4,000 a year into the LISA either as a lump sum or by putting in cash when you can. Then the state will add a 25% bonus on top. So if you save £1,000 you’ll have £1,250 and if you save the full £4,000 you’ll have £5,000. And that’s before interest or growth. Here are the details:
- The bonus is paid until you are aged 50.
- The bonus is paid annually in the 2017/18 tax year, then monthly from April 2018 – once in your account it counts as your money. You’ll be paid interest on it too.
- The maximum bonus you could get is £32,000 (unless the rules change); to do that you’d need to open one on your 18th birthday and keep contributing the maximum £4,000 each year until you were 50.
We think LISA’s could be great savings accounts to start for children or grandchildren. For many a deposit based scheme would be preferable to stocks and shares investments, as the funds may be needed within a few years, but this isn’t necessarily the case. If investing for retirement long-term investment may be more appropriate.
