Lifetime ISA: Has The Pension Death Knell Sounded?

Lifetime ISA: Has The Pension Death Knell Sounded?
Papua New Guinea by Julian Cohen. Why?

The Lifetime ISA has been attacked as a gimmick, but be warned, there’s a distinct possibility it could it end up replacing pensions altogether, as you can see in the video below

Is The Lifetime ISA An Alternative To Or A Replacement Of Pensions?

Get To Know The Lifetime ISA Before It’s Too Late

Although the Chancellor made no changes to pension tax relief in his March 2016 budget, the introduction of the Lifetime ISA that should see the light of day on 6 April 2017 has confirmed his attraction to tax exempt savings. 

It brings to seven the number of ISAs that will be available from next year: (1) Basic ISA; (2) Junior ISA; (3) Inheritance ISA; (4) Help To Buy ISA; (5) Flexible ISA; (6) Innovative Finance ISA; (7) Lifetime ISA.

It could make it more than a little confusing to know which ISA to choose, particularly as the Lifetime ISA is being billed as a way to save for house purchase and for retirement.

Many experts have questioned whether this is the death knell for pensions.  It’s certainly being seen by some as an experiment, perhaps the running of pensions and ISAs together, ultimately leaving the consumer to decide which one is favoured.  In this way, the Government avoids the thorny issue of being the bearer of bad news should pensions be scrapped or possibly reformed significantly, which may peg back or remove tax relief on contributions or see the loss of tax free cash when benefits are drawn at retirement.

Debating The Lifetime ISA

Courtesy of Money Marketing is an excellent discussion by four leading experts on the Lifetime ISA. 

lifetime-isa

The panellists consider at the potential impact of the Lifetime ISA in relation to these topics:

Does the Lifetime ISA risk damaging the success of auto-enrolment?
Will younger people choose easy access over pension saving?
How will the Government manage running two different pension regimes?
Does this pave the way for pension tax relief reform further down the line?

If the amount of commentary in the financial media about the Lifetime ISA is anything to go by, the introduction of the Lifetime ISA could well have significant impact on the financial landscape in years to come. 

The Nuts And Bolts Of The Lifetime ISA

Eligible for savings of up to £4,000 a year, which will qualify for a 25 per cent Government top-up or ‘bonus’ up to £1,000 a year.
A Lifetime ISA can be opened between the ages of 18 and 40. The Government top-up is only on contributions prior to a saver’s 50th birthday.
Accounts will be available from April 2017.
Savings can be used towards a deposit on a first home worth up to £450,000.
Accounts are limited to one per person, not one per household.
Those with Help to Buy ISAs can transfer savings into a Lifetime ISA in 2017, or continue saving into both. Only the bonus from one account can be used to purchase a property.
For retirement, all savings can be withdrawn tax-free after age 60.
Money withdrawn before age 60 will see savers lose the Government bonus plus interest and growth. Savers will also be forced to pay a 5 per cent penalty charge.
Government is considering whether to allow Lifetime ISA funds to be withdrawn in full for other life events beyond buying a home. If savers are diagnosed with a terminal illness, they can withdraw the funds tax-free regardless of age.
Government will also consult on adopting a model similar to US 401K plans, where savers can borrow against their Lifetime ISA funds but do not incur a penalty charge if funds are repaid.

Review The Lifetime ISA Now

It’s a really good idea to check out the video and articles above to get a variety of opinions.  For if you don’t like what you see, it’ll pay you to voice your opinion, for George Osborne has a track record of changing direction under pressure from consumers, as evidenced by his U-Turns on tax credit and disability benefit cuts. 

It's a sobering thought that the future of pensions could well be in your hands, right now!

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