The recently launched Lifetime ISA (LISA) is designed to help under 40s (18-39) purchase their first home or save for retirement. While I applaud the introduction of any tax-free saving platform that rewards savers with bonuses, I am not convinced this latest addition to the ISA portfolio, is as some describe, a credible alternative to pensions.

Confusion

There’s already confusion over the account’s purpose – is it for first-time-buyers or those wishing to save for retirement? Surely such contrasting savings aims require different investment strategies?

Many financial service providers have yet to commit to offering a LISA, frustrated at the last-minute selling guidelines from the financial regulator and sluggish final detail feedback from the tax authorities. This in turn has prevented potential providers making changes to technology, impeding their product launch.

For those, however who are offering a LISA, there are stark differences between this and a pension and it’s important people understand what these are before making decisions about their pension provision, particularly if enrolled in a workplace scheme.

LISA

ISAs are widely recognised as a great place for tax-free savings. The individual tax-free limit is £20,000 a year and this can be split between cash and stocks & shares ISAs. A LISA can be cash or stocks & shares based and for every £4 saved, the Government will add £1 (worth up to £1,000 a year).

The first bonus is payable at the end of the 2017/2018 tax year and after this it will be paid monthly, up until the saver is 50. A maximum of £4,000 a year savings are eligible for the 25% top-up and in order to receive this, funds must be used for a house purchase or held until the saver is 60. If they’re used for anything else, there’s a 25% exit penalty, which not only loses the bonus, but it could reduce the overall savings amount too.

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