The Lifetime ISA impacts

The Governments latest budget has been the subject of much scrutiny over the last week. Some of the changes introduced include the reduction of Corporation tax to 17%, capital gains tax from 28% to 20% and the introduction of the Jamie Oliver tax, otherwise known as the sugar levy on soft drinks.

Last July we considered the impact of the Budget on the research industry and this time around our Financial Services team look at one of the major considerations for the finance sector, the new Lifetime ISA.

The impact of the Lifetime ISA

Pensions remained untouched once again in this Budget but we have seen the introduction of the Lifetime ISA as the Government looks to promote long term saving. From April 2017 those under 40 will have the opportunity to open a Lifetime ISA which aims to help those looking to save towards a home and/or retirement. This new incentive will allow those who save £4,000 each year to receive a 25% contribution from the government. There are restrictions on this however, such as a 5% penalty on withdrawals and the inability to allow employers to make direct contributions but it is a generous return none the less.

The lifetime ISA is an interesting proposition, and should hopefully encourage retirement saving amongst the self-employed – the group that have been left unaccounted for by the pension auto enrolment policy. However, despite the attractiveness of the Government contribution, it lacks one of the key characteristics of auto enrolment – that of harnessing the ‘power’ of consumer inertia and acceptance of defaults. Consumers will still be required to actively participate in saving for their retirement, something which has been a considerable issue in the past. It remains to be seen whether the carrot of a 25% Govenrment match will be enough to encourage younger consumers to sacrifice what they are able to now, for a distant future payoff.

The future of pensions remains to be seen but the introduction of the Lifetime ISA certainly paves the way for the possibility of a pension ISA in the future and opens up some interesting questions about the impact on auto enrolment and the decision making process for those under 40.

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