“Encouragement to save is a good thing. The interaction of the Lifetime ISA with other methods of incentivisation such as auto-enrolment, however, is less clear and gives cause for some concern.
Early focus on debt repayment and easy access to funds will likely mean that fewer people save for their retirement at adequate levels. This is a natural concern given the widely acknowledged under provision issue we already have in the UK.
A graduate leaving university on a corresponding salary would need to put away around 15 per cent of their gross pay to get to the £4,000 savings cap. This isn’t a bad target percentage to aim for over the course of your life, but it’s unlikely that many graduates with debt will be able to make the maximum. Clearly for a 39-year-old who is only just starting to save, £4,000, whatever the percentage, isn’t going to provide the income replacement level that most will be looking for.”
Sonel Mehta, Head of Actuarial Resourcing at Equiniti Hazel Carr said:
"The Chancellor in the Budget ridden with the mantra ‘putting the next generation first’ announced a ‘Lifetime ISA’, whereby those who are under the age of 40 in April 2017 will have the option of saving up to £4000 a year until they reach the age of 50. Upon retirement, individuals will be able to access the pot tax-free. The government sweetens the deal with a 25% matching bonus.
This Lifetime ISA has been put forward as an opportunity for the young to not have to prematurely choose between saving for a property or saving for retirement. However, while the deal seems quite positive – and possibly more lucrative than a personal pension - those building up the Lifetime ISA with a view to drawing funds from it pre-retirement should proceed with caution. Early access, Osborne said, would see the removal of any government bonus already granted and a ‘small charge’ at 5% of the withdrawal amount, unless it is to buy a first home up to the value of £450,000 or in the event of terminal illness.
The contribution is made with the individuals own savings (so post-tax income)."
For more information please contact:
Alban P Maginness
Group PR Manager, Equiniti
Tel: 00 44 748394934
Notes to Editor - About Equiniti
Equiniti keeps things running smoothly behind the scenes for some of the best-known brands and public sector organisations in the UK.
We specialise in providing finely-tuned finance and administration services, as well as smart technology solutions, in complex and regulated markets.
Our services are delivered by 3,500 employees across 29 office locations, enabling us to offer solutions that are flexible, adaptable and scalable.
We are acknowledged leaders in the pension services market and in the share registration market, where our clients include around half the FTSE 100.
Our mission is to make the complex simple.