16th March 2016
The Chancellor has unveiled a new Lifetime Isa, which will allow under-40s to save up to £4,000 each year and receive a government bonus of 25% or £1,000 per annum.
Rather than restricting the Isa to homebuyers, as George Osborne did with the launch of the Help to Save Isa, the latest incentive can be put towards the purchase of a first property or kept until the saver reaches 60 to supplement their retirement income.
The new Isa accounts will be available from April 2017 to those aged between 18 and 40. Any savings made by the accountholder’s 50th birthday will be eligible for an added 25% bonus from the Government.
There are no minimum contributions, but savings will be capped at £4,000 a year .
The total amount you can save each year into all ISAs will also be increased from £15,240 to £20,000 from next April.
Delivering his Budget speech today, Osborne said: “For those under 40, many of whom haven’t had such a good deal from the pension system, I am introducing a completely new flexible way for the next generation to save.
“It’s called the Lifetime ISA.
“Young people can put money in, get a government bonus, and use it either to buy their first home or save for their retirement.”
He added: “For every £4 you save, the government will give you £1.So put in £4,000 and the government will give you £1,000. Every year. Until you’re 50.
“You don’t have to choose between saving for your first home, or saving for your retirement.”
The Chancellor likened the new ISA to a tax-free savings into a pension for basic rate taxpayers. But he said: “Unlike a pension you won’t pay tax when you come to take your money out in retirement.”
Phil Wadsworth, chief actuary, JLT Employee Benefits, says: “Are new attractive ISAs set to take over pensions? Getting one pound for every four is a straightforward incentive to save.
“Coincidentally, it is the equivalent of pension tax relief for a basic rate tax payer. The fact that Lifetime ISAs are much more flexible means younger people will likely find it more attractive than pension savings.”