By Ian Holloway, head of legislation and compliance at Cintra HR & Payroll Services
The Lifetime Individual Savings Account (aka the Lifetime ISA or LISA) was announced in the March 2016 Budget as “a brand new flexible saving opportunity for the next generation”.
The intention is that LISA will be used to encourage saving for a first home or saving for retirement. She comes to potential savers from 6 April 2017 courtesy of The Savings (Government Contributions) Act 2017.
In the event of queries, employers should be aware of the HMRC news story on 17 February 2017 that outlined LISA’s credentials again:
• It can be opened by individuals under the age of 40 and is strictly one person, one LISA
• Eligible savers can invest with no maximum monthly contribution up to £4,000 per year
• Investments can continue up to the saver’s 50th birthday
• Annual investments will be supplemented by a 25% government ‘bonus’, together with interest. The bonus will be paid monthly, however, only from April 2018. During the 2017-18 tax year, the bonus will be an annual payment at the end of the tax year
Not all providers will offer LISA immediately, if at all, so individuals will need to check.
LISA funds can be withdrawn in three circumstances:
Saving for a first home
The savings, together with the government bonus and interest, can be withdrawn at any time and used for a deposit on a first property – as long as the purchase price of the property is less than £450,000. The withdrawal will be free from a tax liability.
Saving for retirement
The savings, together with the government bonus and interest, can be withdrawn from the age of 60. The withdrawal will be free from a tax liability.
Although the LISA’s objective is to encourage saving for a first property or building up funds for retirement, funds can be withdrawn in other circumstances. However, if funds are withdrawn for something else, the government will apply a 25% withdrawal fee but not in tax year 2017-18. This will not apply where the funds are withdrawn for something else and the individual is terminally ill with less than 12 months to live (or dies).
It is important that LISA is regarded by employers for what it actually is – a savings vehicle for individuals. It is not a pension plan and is not a substitute or alternative to auto-enrolment. Of course, the reality is that individuals may see LISA as a better option for them which may result in them opting out of auto-enrolment. However, employers should in no way be seen to be avoiding their workplace pension obligations or encouraging workers to opt for LISA instead.
Posted on 28th February 2017 by Jerome Smail
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