Nucleus is calling for a cut in the Lifetime Isa withdrawal charge from 25 per cent to 20 per cent.
Nucleus has set out nine recommendations for how the Lifetime Isa could be improved as the HM Revenue & Customs consultation on the product’s regulations closes today.
The Lifetime Isa is due to launch in April. The product will allow savers up to age 40 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.
Nucleus’s other recommendations include allowing self-employed people to open a Lifetime Isa up to age 50, to merge the help-to-buy Isa and the Lifetime Isa, and that the annual payment limit should be raised and reviewed each year based on house prices.
Nucleus also wants to see communication around the Lifetime Isa clearly state that the product is not a direct substitute for a pension and that it does not have the full flexibility of an Isa.
It also wants to see clear communication that the withdrawal charge will reclaim the government bonus, plus interest, as well as a charge on member contributions.
Money Marketing previously reported that Nucleus wants to see withdrawals from the Lifetime Isa to pay for advice exempt from an exit charge.
Nucleus product technical manager Rachel Vahey said: “We think people should be allowed to pay an adviser charge from their Lifetime Isa and it should not incur a charge, whereas at the moment if you took money out to pay an adviser that would incur a 25 per cent charge. It means you are taking back the bonus the Government has given you and any growth on that bonus.”
Nucleus has also recommended that the Government carries out a comprehensive study of what action people will take on the introduction of Lifetime Isa and to regularly monitor and report on the effects after it has launched, including details of revenue raised from withdrawal charges.
Vahey adds: “With the introduction date for Lisa fast approaching, much of the detail remains unclear. For some, Lisa will provide them with an effective way of saving for their goals – whether that’s their first house or their later life. But it won’t be suitable for all.”