The Lifetime Isa (Lisa) launched on 6 April, but only few providers are offering the product and the uptake has so far been underwhelming.
The Lisa enables those aged under 40 to save up to £4,000 a year, which will be topped up by the government by 25 per cent up to a maximum of £1,000. The money saved can then be put towards a first home or accessed from the age of 60.
So far only a couple of providers are offering the Lisa. At launch, all Lisas available were hosted by investment platforms, which offer the stocks and shares version.
Therefore, those who wanted to open a Lisa straightaway at the start of the tax year could only do so by investing in the stock market. And the fees can be steep, particularly in the case of The Share Centre, whose Lisa management fee is priced between 1.92 per cent 2.01 per cent. The firm only allows Lisa subscribers to invest in one of its three multi-manager funds.
The other two firms offering a stocks and shares version of the Lifetime Isa are Hargreaves Lansdown and Nutmeg.
Platforms fees at Hargreaves Lansdown are 0.45 per cent plus investment fees on top. Customers have their pick of 2,500 funds, both active and passive, as well as investment trusts, ETF, model portfolios, and in addition UK and overseas shares.
At Nutmeg the Lisa management fee is either 0.75 per cent or 0.45 per cent depending on whether its customers pick a ‘fully managed’ or ‘fixed allocation’ portfolio. Overall charges come in at around 0.94 per cent and 0.62 per cent, when adding in fund fees. Nutmeg’s own portfolios consist of ETFs.
In terms of providers offering the cash version of the Lifetime Isa there’s very slim pickings, with no firms entering the space on day one of the new Isa being launched. Earlier this month, Skipton Building Society entered the fray, launching the first cash-only Lifetime Isa. But it disappointingly only pays meagre interest at 0.5 per cent.
Ahead of the Lifetime Isa launch concerns were raised about the prospect of savers swapping their workplace pension for a Lifetime Isa. In doing so, savers will lose out on valuable employer contributions. This, perhaps, is one the main reasons behind the lack of uptake so far.
Martin Tilley, director of technical services at Dentons Pension Management, says: ‘The Lisa has not currently seen a lot of traction as its introduction, rules and regulation were not finalised in a timely manner, which resulted in only one provider having a product in place at launch.
‘The penalty on early withdrawal is a disincentive to "over contributing" meaning investors are more likely to be cautious. There is also some confusion over the products goals.'
For very high earners who have reached pension annual or lifetime allowance limits, a Lisa is viewed as a good option, adds Paul Waters, Partner at Hymans Robertson. But he says as far as most basic rate taxpayers are concerned they will benefit from extra contributions from their employer in pension, as well as lower charges.
He adds: ‘If your absolute goal is retirement saving, a pension is generally your best option. Pensions come with strong incentives to save, in the form of upfront tax relief and employer matching contributions for many in the workplace.’
Adam French, founder of Scalable Capital, a robo-adviser, thinks it is unclear who the Lifetime Isa is trying to target, which is one of the reasons why his firm is not offering a Lifetime Isa.
‘I am not entirely sure who the Lifetime Isa is for. My feeling is that it seems to be mainly offering the very high earners another tax break,’ he says.
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