Another year has gone by, and another scheme is being lined up by the government to get us saving.

From April 2017 the government are rolling out a new scheme (following on from the Help-to-Buy ISA), the “Lifetime ISA” (LISA). The idea of this is that, if you are under 40, you can save up to £4,000 a year upon which the government will top up by 25%, giving you a nice £1,000 of free cash per year.

Catch?

There are obviously some restrictions with what you can do with the money you put in. If you don’t put the money down on your first home you will have to wait until you are 60 to withdraw the cash.

So what happens if you breach these rules? For example, if you begin saving for a deposit and then decide for whatever reason that you need the money for other more urgent things? Well, in order to access your funds for any other reason, you will have pay a 25% charge on any funds you withdraw – those of you who are quicker with your maths will realise that this means you can only withdraw 93.75% of what you put into the LISA.

So, the question is – Is it actually worth it?

Well, for a first time buyer the answer is a pretty straightforward yes. The scheme is an improvement on the Help to Buy ISA and allows you to pay more money into it per year.

If you are looking at saving for retirement, then the answer is a lot more complex. On the surface, the Lifetime ISA would appear to perform similarly to a pension; however there are a couple of things to be aware of:

• If you are a higher rate taxpayer, then you would get 40% tax relief on pension contributions – which will easily beat the performance of the LISA.
• When you reach 60, you can withdraw the whole of your LISA tax-free, whereas you would only get 25% of your pension pot tax-free.
• There is obviously much more fine print in the workings of the LISA, however, I would probably need many more pages to run through these!

One final word of warning – it appears that very few banks/building societies will actually be offering the LISA from 1st April, in fact, none of the main banks have confirmed that they will offer it. Many have said that it will be offered “at some point” before 5th April 2018, however, there is currently a lack of clarity in some of the finer details which has led to worries about possible mis-selling.

So, is the LISA for you?

I suppose it varies depending on your specific circumstances, what you want to save for and what other options you have open to you. One thing is for sure – you will be hearing this being shouted from the rooftops over the coming month, just don’t take everything you hear at face value.

Maybe the fact that banks aren’t rushing to take this up is the biggest factor of all.

If you are thinking about the future and want to ensure you are best prepared, get in touch on 01872 300232 or email us at hello@hivebusiness.co.uk.