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  • September 2016
09

UK government pushes ahead with Lifetime ISA

Open-access content 7th September 2016

The UK has introduced the Savings (Government Contributions) Bill to the House of Commons, which will legislate the Lifetime ISA (LISA).

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The LISA was first announced by former chancellor George Osborne in the March Budget in order to encourage those under 40 to save for a first home and/or for retirement. 

The product will be available in April 2017. The Bill, published yesterday, provides more information on how it operates. 

Contributions will be paid after tax but the LISA will also attract a government bonus of 25%, equivalent to the tax relief on pension contributions for those paying basic tax rate. A cap on annual contributions of £4,000 has also been confirmed.

Proceeds can be taken tax-free to buy a first home of up to £450,000, after the age of 60, if terminally ill, and on the death of the LISA holder. 

If withdrawals are taken any other time, the HMRC will reclaim the government bonus plus interest and an additional charge equivalent to a further 5% of the withdrawal.

Aegon's pensions director Steven Cameron said: "The government was also known to be considering allowing individuals to borrow from their LISA, without losing the government bonus if repaid within certain rules. This seems to have been dropped. 

"The original plan was for LISA providers to claim the bonus for individuals after the end of each tax year. There is no indication of the government bowing to industry pressure to allow this to be claimed monthly, allowing individuals to benefit earlier from the bonus."

Cameron also pointed out that the Bill revealed various aspects of the product design but full details would not be provided until the Bill reaches Committee stage in Parliament, meaning launching the LISA would be "highly challenging".

When the LISA was first introduced in March, experts said it could conflict with other saving products. In July, members of the Work and Pensions Committee remained concerned whether the product could undermine pensions. 

This article appeared in our September 2016 issue of The Actuary.
Click here to view this issue
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