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Shares in Hargreaves Lansdown (HL) and St James’s Place (STJ) are benefiting from the UK Chancellor’s announcement about the Lifetime ISA. From April 2017 savers will be able to use a new hybrid product designed to encourage saving for both retirement and that UK obsession – home-ownership.
The government’s promise of a 25%/£1K bonus for everyone who subscribes the maximum £4K annually may serve to shake up the industry a bit, encouraging competition among providers to attract more new money. Everyone will benefit from savers subscribing the full £4K annually – savers from the boost to their pot and providers from the boost to assets on which they can charge fees.
The new hybrid ISA product is designed to bridge a gap between what can be very inflexible pensions (money locked up, expensive, difficult to move, benefits from tax relief but taxed on the way out) and the flexibility of an ISA (post tax money, easy to move, cheap, fully accessible, no tax on way out). Whilst called an ISA, however, funds are only accessible from the age of 60. So unless you are a first time-buyer requiring access early to get yourself on that fabled ladder, you’re money is still essentially locked up.
This suggests the idea is more designed to help get youngsters on the property ladder than assist the next generation in saving more for retirement. The limited bonus element may mean those nearer middle age are better off with existing pension products offering tax relief. So while it looks like an ISA and sounds like an ISA, it’s actually just a pension with less tax relief. Then again maybe that’s what George is angling for, knowing that so many are putting off retirement saving until it’s too late (weddings, home ownership and kids taking priority). Perhaps his aim is to get more people saving into something that sounds like an ISA but is actually more like a pension, helping take the burden off the state.
Also restricting first-time buyers to homes valued up to £450K seems a little unfair for those in the South East. Especially if house prices keep rising as the government likely wants. You may not be able to buy anything for that in 20-30yrs, which might be how long it takes many to save up what is needed for a deposit. Nice try George. Better luck in the Autumn
Mike van Dulken, Head of Research, 16 Mar
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