The Lifetime ISA (LISA) presents a “once in a generation” opportunity for financial planning, offering “enormous possibilities” for advisers to add more value to their clients, Standard Life’s head of financial planning proposition tells Carmen Reichman
Alastair Black said the new product, which will sit snugly between pensions and ISAs, will complement both, while offering an added tax planning avenue for advisers.
The LISA was introduced by the Chancellor in his March Budget as a new savings product for the next generation. It is set to become live next April.
The product will allow people between the ages of 18 and 40 to open an account and save up to £4,000 a year until they are 50, at which point they will receive a government bonus of 25% – up to £1,000 a year.
The savings and bonus can be used towards a deposit on a first home worth up to £450,000 or as part of a person’s retirement, allowing tax-free access after the age of 60.
Critics have suggested the product offered the Chancellor a way of pulling out of more radical reforms of the pension system, such as introducing a Pension ISA, without shutting the door on the prospect completely.
A Pension ISA – an idea mulled over by the Government in the months before the budget – would work similarly to an ISA. It would offer tax relief on growth and withdrawals but would accept capital that has already been income taxed.
Black took issue, however, arguing the LISA rules known so far are very different from pensions and ISAs, making the product attractive in its own right.
They also will not detract people from saving into pensions, as they will be doing that through other means such as auto-enrolment, he said.
“People value their secure pension saving, that it is separate and not readily accessible, because they don’t trust themselves,” he added.
“I don’t think LISA will create a risk to pensions. It may have the opposite effect of engaging people in financial services and encouraging pension saving because people will recognise the value of their pensions.”
Relationship Management
For Black, the LISA will be particularly attractive to those who want to pass on money to their children, allowing their advisers to offer more valuable propositions.
Current vehicles such as the Junior ISA, which offer some tax-free savings up until the age of 18, do not offer parents the same level of control over the money, he suggested.
With a LISA, parents can choose directly to support their child’s first home purchase and allow the child to benefit from a 25% boost on their contribution as well as tax-free growth, he said.
“[We will] see a lot of demand from wealthy individuals to get their advisers involved to start their children planning,” Black continued. “This will add further value for advisers. The challenge for advisers is how to develop that relationship.”
Black recognised other products, such as the help to buy scheme, which is designed to help first-time buyers get on the housing ladder, already offer people the chance to buy houses with small deposits. He pointed out, however, that research shows people still tend to want to save up larger amounts of starting capital when buying a house, most likely to obtain a better mortgage deal.
Some commentators have highlighted the possibility the government may one day take all the tax advantages away, reasoning ‘the taxpayer helped fund these ISAs, so why shouldn’t we charge tax on the end result?’
But Black said he had “no reason to assume” this would happen.
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