The Savings Government Contributions Bill was introduced to parliament on Tuesday 6 September 2016. It applies UK-wide and introduces two things:
1. The Lifetime ISA (LISA), and
2. The Help-to-Save account
Both were announced at the Budget in March 2016 and, as the legislation and information is in the public domain, it is worthwhile covering both. Indeed, with LISA, it is important that she is covered:
LISA is a vehicle designed to encourage young people to save, either for a deposit on their first home or as retirement income. She can be opened up to the age of 40 and the information on Gov.uk says that she will allow up to £4,000 of savings per year up to the individual’s 50th birthday. Investments will be topped-up by a government ‘bonus’ of 25% up to a maximum of £1,000 per annum – that is, £4,000 at 25%. Interest will also be added.
Funds can be withdrawn at any time. However, if the monies are not being used as a deposit or pension, the government will withdraw their bonus, withdraw the interest and apply a 5% withdrawal fee. If the purchase price of a first property is less than £450,000, LISA funds can be withdrawn towards the deposit without penalty to the government bonus or the interest that has accrued. Withdrawals will be free of tax. Help-to-Buy ISAs will remain up until November 2019, at which time they will be closed to new savers.
Alternatively, the funds can be withdrawn from the age of 60, again without penalty to the government bonus or the interest that has accrued. Withdrawals will also be free of tax.
This is the trouble with LISA. Will workers see LISA as a better option than a workplace pension? A survey by Fidelity International in July 2016 and reported by Payroll World suggested that LISA would not be a threat. Although, 7% of 18- to 40-year-olds surveyed indicated that LISA would encourage them to opt out, with 37% saying that they would use LISA and a workplace pension.
Maybe it’s me, but it is not so much the worker I am concerned about; it is more the employer trying to avoid their auto-enrolment duties by trying to lure young employees towards the tempting LISA (let’s be honest – on the surface, she does look alluring). With both worker and employer in mind, it leads me to ask:
• Are workers educated enough to be able to make the choice between LISA, the workplace pension or both?
• Are employers educated enough to realise that they have workplace pensions obligations and teasing workers with the LISA’s wiles is totally against these?
The answer to both questions is “probably not” – at the moment.
Not so imminent is the Help-to-Save account. While this is covered in the above bill, the government has only made the commitment that it will be introduced “no later than 2018”.
Briefly, the Help-to-Save is another savings vehicle, this time for people in receipt of Universal Credit or Working Tax Credits. Claimants will be able to save up to £50 per month and receive a bonus of 50% if the account is still open after two years.