The news that the Treasury Select Committee has recommended the Lifetime ISA (LISA) be scrapped, not two years on from launch, is simply nonsensical. The government should be investing time and money in promoting this product for the good of an entire generation, not wasting time debating whether to keep it.
The voice of the customer has gone missing
The Treasury Select Committee has chosen to focus on the voice of the industry, and not the customer. By contrast, we’ve seen the value of the LISA first-hand, with many of our younger customers coming to us motivated by the 25% government bonus on offer.
For many young people, putting money aside for their first home or their retirement is difficult. The LISA offers a great incentive to help people aged between 18 and 39 to save or invest for their future.
We’re seeing the behavioural change the LISA has started
The Lifetime ISA has triggered many of our customers to invest for the first time and be motivated to achieve one of their most important lifetime goals – buying their first home.
The average timeframe our LISA customers plan to invest for is 16 years. This shows younger people are beginning to plan ahead with their savings. Helping them to do so is imperative and a behaviour that must be encouraged more.
A lacklustre response from other providers shouldn’t reflect on the product
Many financial firms have turned their back on the LISA because it’s not targeted at their typical customer and is technically challenging to implement without an agile approach to technology.
But this doesn’t mean the product itself isn’t achieving its intended aims. We as an industry should work collectively to encourage younger people to save. We’ve embraced the LISA as a welcome product, and we know the onus is on us to educate and engage younger people on the importance of long-term saving and investing.
We’re calling on the government to focus on developing the product instead
Since the LISA is already showing such great potential, we think the focus should be on developing the product further, tackling the aspects that we see as needlessly restrictive.
Let’s spend our time more wisely, using the LISA as a foundation to encourage positive behavioural change among young savers and investors. We’d like to see the government extend the product to allow contributions up to the age of 60 and remove the £450,000 limit on buying a first property.
We’d also like to see the early withdrawals penalty reviewed, so that people don’t risk losing out on hard-earned gains.
The bottom line is, the LISA is doing a lot of good for a generation so often overlooked by policies and providers. We’ll be campaigning hard for the LISA to stay, championing the voice of our customers and thousands of others who have bought into the promises offered by the government over the past two years.
Taking away the LISA would mean less potential savings, less wealth, and a poorer country. We need to address the UK savings gap and get more young people to save. The Lifetime ISA is proven to work. And it should stay.
As with all investing, your capital is at risk. The value of your portfolio with Nutmeg can go down as well as up and you may get back less than you invest.
A Lifetime ISA may not be right for everyone
- You must be 18–39 years old to open one.
- If you need to withdraw the money before you’re 60, and it’s not for the purchase of a first home up to £450,000, or a terminal illness, you’ll pay a 25% government penalty (the withdrawal penalty will be temporarily reduced from 25% to 20% from 6 March 2020 till 5 April 2021 due to coronavirus). So you may get back less than you put in.
- Compared to a pension, the Lifetime ISA is treated differently for tax purposes. You may be better off contributing to a pension.
- If you choose to opt out of your workplace pension to pay into a Lifetime ISA, you may lose the benefits of the employer-matched contributions.
A Lifetime ISA may not be right for everyone and tax rules may change in the future. If you are unsure if a Lifetime ISA is the right choice for you, please seek independent financial advice.