Lifetime ISAs and Pensions for Younger Savers – One or Both?



Posted on: 10th August 2016

Given the fact that a Lifetime ISA gives young people the opportunity to save for both their retirement and their first home using the same plan, it’s hardly surprisingly young savers are being advised to do exactly that. But at the same time, a lot of financial advisers are suggesting that their younger clients consider putting money into a Lifetime ISA as well as a pension, as opposed to just choosing one of the other.

According to the government, the official and primary purpose of the new Lifetime ISA is to give younger savers an accessible and beneficial means by which to save for home-ownership and retirement. Or in other words, it’s a concept designed to bring an end to the problem of having to decide on a pension or a home of your own, rather than both. What makes the Lifetime ISA different? Well, while it shares a lot of the features you’d expect from a standard ISA, there’s also the perk of the gov throwing in a 25% bonus of £1,000 when the saver in question saves £4,000.

In a mathematical sense therefore, it seems to make an obvious choice over and above the 20% relief offered as standard on pension savings of £4,000.

On top of this, there’s the way in which the government is also touting the promise of free withdrawals that accompany the Lifetime ISA as another key selling-point. This applies to all withdrawals when the saver is over the age of 60 and free withdrawals when used for home purchase purposes. So once again, it all seems like a much sweeter deal than you’d expect when paying into a standard pension. But at the same time, it’s being argued that none of this takes into account things like workplace pensions and employer contributions, along with the advantages of salary exchange schemes where applicable.

As far as sceptics are concerned, the idea of tax-free withdrawals just doesn’t seem to add up when considering things long-term. Instead, they point to the thousand and one alterations to taxation and pension systems over recent years, which have resulted in millions not gaining access to anything like the perks and breaks they were promised. Long story short – they see history repeating itself further down the road.

But then again, it’s all pure speculation at this point in time.

On the whole therefore, it’s easy to see why a lot of IFAs firmly believe that while Lifetime ISAs are supposed to make planning easier for younger savers, they might be having the exact opposite effect. Rather than buying into Lifetime ISA plans and relying on them entirely, the general consensus is one that points to also focusing on workplace pensions, employer contributions and so on. It’s simply a case of hedging and spreading your bets in accordance with what’s available to you, rather than going for the classic ‘all eggs in one basket’ approach.

For more information on Lifetime ISAs, pensions and savings in general, get in touch with the Haven IFA team today for a free initial consultation.