Could LISA make you worse off?
The Lifetime ISA introduces new restrictions and an exit penalty
With the recently announced plans for the Lifetime ISA, Jamie Smith-Thompson, managing director of Portafina, highlights why savers could be worse off:
“The Lifetime ISA is an interesting concept, but has a long way to go before it’s compelling. You can’t open one if you’re older than 40 or pay in if you’re older 50. The age at which it can be accessed penalty-free for anything other than buying a house is 60 – five years older than the age to access a pension. Why would a person not invest in a pension, receiving the tax relief and tax-free growth, and have a separate ISA for accessibility?
Part of the appeal of the Lifetime ISA will be that it’s more flexible than a pension. Perversely, that appeal could make a person worse off: those that see the flexibility as a benefit are the most likely to access their money early. If someone really needs the money, then losing the bonus and its growth probably won’t be a strong deterrent. As this would reduce their retirement savings, the consequence could be the last thing a Conservative government would want to see: more administrative work and a higher benefits bill.”
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Releasing your pension benefits early could reduce your income at retirement and therefore is only suitable for a limited number of people and circumstances.
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