No cash-based Lifetime ISAs available on day of launch

The government’s new long-term saving vehicle, the Lifetime ISA (LISA) has run into controversy on the day it launches, with no lender making a cash option of the product available for investment from 6 April

As originally announced by previous chancellor George Osborne, from Thursday 6 April, those between the ages of 18 and 39 are able to open a LISA cash savings account. The savings can only be used for a first time buyer’s home deposit or for retirement. 

Savers benefit from a government bonus of £1,000 a year, if they deposit the maximum amount of £4,000. But apart from in the first year, they will lose 25% of everything they take out of it, unless it is to buy a house, or unless they have reached the age of 60.

However, there are no cash LISAs on the market, with banks and building societies saying the product is too complex for customers to understand. There are only three LISAs on offer this month, all stocks and shares versions via investment platforms.

Blick Rothenberg is warning that savers can get back loess than they initially put into a LISA if money is withdrawn early.

Suzanne Briggs, director at Blick Rothenberg, said: ‘The LISA may not be appropriate for everyone due to the exit penalties if money is withdrawn for any other reason other than those permitted. If you need access to the cash after April 2018, you will pay a 25% exit penalty. 

‘So for example, if you put in £4,000 and receive the 25% government bonus, your LISA is worth £5,000. You need the funds for a financial emergency so you withdraw the cash, but after the 25% exit penalty is applied, you only receive £3,750 back. Even if the value of the fund grows steadily at the rate of say 4%, the impact of the exit penalty could mean that you would get back less than the growth in value of the fund!’

Briggs also cautioned that although the LISA is designed to work alongside pensions, those seeking to save for retirement may be better off maximising their pension contributions in the first instance, while those with medium term investment plans might prefer the flexibility of existing ISAs.

Pat Sweet |Reporter, Accountancy Daily [2010-2021]

Pat Sweet was the former online reporter at Accountancy Daily and contributor to the monthly Accountancy magazine, pub...

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