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Boulding: Expand Lifetime Isa to pay for weddings and child care

Money Marketing Interactive 2016

The Government should expand the scope of the new Lifetime Isa to allow early access for a bigger list of life events, according to Tisa policy strategy director Adrian Boulding.

Speaking at Money Marketing Interactive’s ‘death of the pension’ session, Boulding said savers needed more short-term incentives to save.

Under current proposals the Lifetime Isa will only allow penalty free access to savings for a first property purchase.

In all other scenarios, apart from terminally ill health, savers pay a 5 per cent exit penalty in addition to a return of the 25 per cent Government bonus and any interest earn on it before the age of 60.

Boulding says: “The Lifetime Isa enables you to save for something that isn’t far away, your first property purchase. That’s building on the success of the Help to Buy Isa, which sold 370,000 plans in the first four months, we know that works and is popular.

“People will make sacrifices up to about five years, beyond five years it is harder for human beings to plan. To build on that the Lifetime Isa needs to have some other lifetime events more than just house purchase.

“When the Chancellor launched it in his Budget he said he was mindful to consider other lifetime events being added and you could imagine a series of stepping stones between now and retirement – you’ve got first time property purchase, marriage, first child, moving to a bigger house.

“You can see a situation where people put money into the Lisa, save up for the next event, take some out, continue to save, and money goes up in a zigzag pattern.”

The panel also discussed whether the pension freedoms were be unwound by a future Government.

Corporate Adviser editor John Greenwood thought the impact of the reforms would take at least a decade to play out.

He said: “Today, lots of people with defined contribution pensions also have defined benefit pensions. In 15 or 20 years there’s definitely a possibility that lots of people will have run out of money as we’ve seen in Australia. People will go suddenly down to £7,500 a year on the state pension.

“It’s quite possible the pressure that was exerted on the annuity market will come to bear on the non-advised drawdown market. So maybe eventually the Government will say you can only have a certain amount each year and whatever they do with tax relief that’s one of the issues that might come into play.

“Because one of the reasons why people support retaining tax in retirement [as opposed to the Isa model] is because it nudges people into not taking too much out in one year.”

Tpas chief executive Michelle Cracknell said the Government has a difficult balancing act between protecting customers and allowing firms the freedom to produce products that help boost savings.

She said: “There is a dichotomy between consumer protection and the ultimate policy outcome that needs to be achieved, which is making people save for their retirement. We know financial services has to be sold, buying something that only gives you gratification in the future needs to be sold as a concept.

“There’s a very interesting balance the Government has to achieve between having customer protection but equally allowing people to be able to sell products so people have a decent retirement income.”

However, Boulding was adamant the genie would not be put back into the bottle.

He added: “Why was it that in a DB era you had all these rules? It was to protect the scheme, not the individual. The collective framework of DB needed to ensure people couldn’t take all of their money out, what would have happened in the BHS or Tata scheme?

“They would have had floods of money leaving as employees realised it was running into trouble.

“Now we’ve moved to DC and those pots are priced every day and the money really is there, the schemes don’t need those protections to stop those withdrawals hence it is allowed. So no, I don’t think it will be rowed back because those protections were not there to stop people being foolish.”

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Comments

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  1. Allowing money to be taken out of a tax-advantaged scheme to pay for a wedding is not an incentive to save, it is an incentive to blow your savings.

    The cost of getting married is a trivial. Less than £100. Anyone who cannot get together £100 (let alone the traditional three months’ salary to buy a ring) should not be entering into a marriage contract. What inflates that cost is, of course, the bling and the party afterwards. So what Boulding is proposing is that people should be able to take money out of the Lifetime ISA to finance a party. By all means save up for a party if you want to, but I don’t see why it should attract tax relief or a government bonus in the same way as saving for retirement.

    As for childcare, you should be able to pay for your children’s needs, including childcare if that is your choice, out of your current regular income. If you can’t afford a child, don’t have one.

    “You can see a situation where people put money into the Lisa, save up for the next event, take some out, continue to save, and money goes up in a zigzag pattern.” Er, anyone who knows how compound growth and pound cost ravaging works knows that that zigzag’s only going to zag one way. The way finance graphs always zag in Far Side cartoons.

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