The FCA wants savers into Lifetime Isas to receive risk warnings about penalty charges and opting out of auto-enrolment amid concerns about how the product will work in practice.
The regulator has published a consultation paper today on the rules governing the promotion and distribution of Lifetime Isas, which are due to launch in April.
Lifetime Isas allow savers to pay in up to £4,000 a year, with a 25 per cent Government bonus on contributions. Funds can be used to buy a first home worth up to £450,000, or can be accessed from age 60 or in the event of terminal illness.
Withdrawals for any other purpose will attract a penalty charge of 25 per cent on the whole fund, including any growth. A growing number of industry voices have been vocal in their criticism over the way the exit charges are applied.
The FCA says because the Lifetime Isa combines short to medium-term savings with long-term investments, as well as the early exit charge, it presents risks to its objective of consumer protection.
The FCA says: “Investors will need information about how a Lifetime Isa works, for example, eligibility, Government bonus, early withdrawal charge, etc.
“We believe investors in Lifetime Isas that include a relevant investment should also receive specific risk warnings in respect of:
- incurring the early withdrawal charge which may mean that they receive less from their Lifetime Isa than they paid in, and
- potentially losing an employer contribution to a workplace pension for which they may be eligible, where they choose to open a Lifetime Isa instead.”
Firms will have to remind savers about holding an appropriate mix of assets. They will also have to offer a 30-day cancellation period when a Lifetime Isa is opened.
The FCA has also proposed savers should be shown a projection table estimating what they can expect to get back from their Lifetime Isa at age 60, taking into account the bonus, specified returns, and inflation.
The consultation closes on 25 January.