The Government is to introduce a Lifetime Isa to allow consumers to choose whether to fund their first property purchase or their retirement from next year.
From April 2017, people under 40 will be able to contribute up to £4,000 a year into the new Lifetime Isa. The Government will top up savings by £1 for every £4 saved, up to the age of 50.
Funds can be used to buy a first home, up to £450,000, any time from a year after opening the account and can be withdrawn from age 60 to fund retirement.
Savings can be accessed at any time prior to that but the bonus will have to returned and a 5 per cent charge will be levied.
However, the Government is to consult on replicating the US 401k system where the bonus can be reclaimed if money is put back into the product.
The Government will also consider allowing the product to be used for other “specific life events” aside from property purchase.
In the 2017/18 tax year people with a Help to Buy Isa will be able to transfer into the Lifetime Isa and retain the £4,000 contribution limit.
Retirement Advantage pensions technical manager Andrew Tully says: “This seems to be a halfway house to the much talked about pension ISA, with a 20 per cent bonus in place of tax relief, and all benefits tax-free when taken.
“If it takes off and is successful, moving all pension saving to this format would seem inevitable.”