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Leader: The rise and rise of the Isa

Natalie Holt, journalist with Money Marketing Photo by Michael Walter/Troika

Away from the death of the Money Advice Service, the revelation of the Lifetime Isa was undoubtedly the biggest story to come out of the Budget.

From simple beginnings the humble Isa has been put through the Government machine to become all things to all men, deployed for kids’ savings, a house deposit, peer-to-peer lending, and now the ultimate retirement savings vehicle in the form of the Lifetime Isa. Clearly the Chancellor has taken a good idea and run with it.

It is interesting to note that every time George Osborne takes to the despatch box we move further away from the Aussie-style of mandatory pension contributions to the more flexible savings model of the US.

But while a product that caters to savers’ needs throughout their life sounds like a provider’s dream come true the practicalities, as ever, throw a spanner in the works.

As part of the Lifetime Isa, the Government is to consult on introducing a US-style model where a proportion of a savings pot can be withdrawn and later repaid, without incurring early access charges.

Money paid in will only qualify for a 25 per cent Government top-up if it is kept in the Lifetime Isa, with the exception of those who are using Lifetime Isa savings to buy their first home.

When you consider the Lifetime Isa comes with the responsibility for reinvesting any bonuses paid, the complication of ensuring funds are only spent on properties up to £450,000, and policing and administering where bonuses are withdrawn, for providers the products start to look less of a captive customer Utopia and more of a nightmare.

The implications of the Lifetime Isa are only just starting to be worked out, but initial reactions suggest too much pension freedom may be a bad thing.

As always post-Budget, tax and financial planning opportunities abound. Another aspect of the Budget that got lost in the crush was the annual Isa savings limit moving from the current £15,240 to £20,000 in April 2017.

Taken with the previously announced moves on the personal savings allowance, the dividend allowance, and significant cuts to capital gains tax, the ability to shelter clients’ investments from tax has never been greater.

For couples, they will have £40,000 in annual tax-free saving to play with based on the hike to the Isa threshold alone.

It begs two questions: where are all these people that have £40k-plus in disposable income? And how do advisers find out where they live?

Natalie Holt is editor of Money Marketing. Follow her on Twitter: @Natalie_Holt_MM

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