The new addition to the Individual Savings Account range (ISA), the Lifetime ISA (LISA) looks set to help millions of self-employed people make provision for their retirement when it launches in April 2017.
Research by insurer Royal London1 refers to the UK’s 4.4m self-employed business people as the ‘Forgotten Army,’ concluding that when it comes to pension provision, this group needs a substantial nudge to encourage them to save more.
The LISA could provide a welcome incentive for long-term savings. Designed to provide a deposit for a first home or to be held until age 60, it offers a valuable bonus incentive. It will be available to those aged 18 to 40 who want to save up to £4,000 each year. The government bonus means that for every £4 saved, the government will add a further £1, meaning that anyone contributing the maximum will receive a further £1,000 at the end of the tax year.
A LISA can be held until age 60 (although bonuses are only paid up to the saver’s 50th birthday). After 60, all money saved can be taken tax-free. Penalties will apply if the money is withdrawn before 60; the bonus will be forfeited and there will also be a 5% charge.
Whilst making regular contributions into a pension plan could ultimately represent a better, more tax-efficient way of providing for retirement, a LISA is a welcome addition to the savings range.
Tax treatment varies according to individual circumstances and is subject to change.
1 Royal London, Britain’s “Forgotten Army”, 2016.