Experts Say Chancellor Has Turned His Back On Older Savers
The Chancellor has revealed his plans for a Lifetime ISA aimed at helping millions of adults under 40 to buy homes or a pension.
The new Individual Savings Account (ISA), due to be launched in April 2017, will offer savers a 25% bonus from the government.
Those who opt into the scheme will be able to put in up to £4,000 a year, with an annual bonus of up to £1,000 paid until the age of 50.
This afternoon George Osborne announced that, all savers will be able to put up to £20,000 a year into ISAs, up from the current level of £15,240, meaning subject to the new limit, it will be possible to have both a standard and a Lifetime ISA.
He added that savers would be able to withdraw money from a Lifetime ISA at any time but those wishing to use it for retirement will have to wait until the age of 60.
Savers who have already taken out a Help to Buy ISA will be able to move their money into a Lifetime ISA, and those wanting to use the money to buy a home will be able to do so after just a year.
If they have both types of ISA, they will only be able to use the bonus from one of them to buy a home.
Although the government will consider options for savers being allowed to withdraw money for "other life events", those wanting to take money out for other reasons will not qualify for the bonus and would face a 5% charge.
Pensions experts from law firm Irwin Mitchell Penny Cogher and Martin Jenkins said that while the plan might help the under 40s, it left older savers with an “inflexible system” and could create “complications for employers.”
Expert Opinion“The new Lifetime ISA is only for the under 40s. There's a pension savings gap at all ages in our society.
“So instead of everyone being in this together, all the over 40s are left with a complex, inflexible system that doesn't provide a good deal for them - that seems to be too hard to reform.
“The Chancellor has turned his back on pension reform - at least for now. His focus is on boosting saving by the young through ISAs, not pensions.
“He has looked to the U.S. for a practical solution to the pension savings gap for the young and the Lifetime ISA, based on the $401,000 system in the U.S. It is likely to be popular if the "young" and the under 40s, have any spare money left after they have paid off their university tuition fees.” Penny Cogher - Partner
Expert Opinion“The Chancellor didn't explain how the Lifetime ISA would interact with employers' automatic enrolment pension obligations – fortunately as the Lifetime ISA only starts from April 2017 there's still time to thrash out the detail.
“But it will involve more complications for employers. This was a missed opportunity for the Waspis, (Women Against State Pension Inequality) - the Chancellor is looking after the young rather than the old in this budget.“ Martin Jenkins - Partner