Lifetime ISAs guide

leitmotif

masonic wrote: »

The LISA legislation is exempt from age discrimination requirements. That's the beauty of being able to legislate - you can make exemptions when needed, just like the example Martin gave about pension age. The same is true of such things as the age of criminal responsibility, the age of consent, voting age and the legal drinking age. Even the requirement to renew your driving licence at 70 and every 3 years thereafter. None of these things are classes as illegal age discrimination.

Thanks for the reply. There's a substantial difference with some of those things, though. For example, with rights attained at a certain threshold age, you will attain them just like everyone else at that same age. The pensionable age is slightly different, of course, because if they shift it some people will lose out a little, but the point is they'll still be eligible for state pension just like everyone else, even if they have to wait a bit longer. So they're not losing out completely. The LISA, on the other hand, is a case of some can have an opportunity to get tens of thousands of pounds of taxpayers' money and others will have to do without. And it's this binary opposition that irks me.


Do you (or does anybody) happen to know what the LISA legislation is? I searched online but couldn't find any. I'd like to look into the matter in more detail. I already raised this with my MP and she wrote to whatever government department was involved and asked them to justify the age cap, and their response didn't justify the age cap, instead simply saying that their calculations suggested anyone over 40 wouldn't stand to benefit as much as people under 40. And I'm only barely paraphrasing.

ikatsi

leitmotif wrote: »

Do you (or does anybody) happen to know what the LISA legislation is? I searched online but couldn't find any. I'd like to look into the matter in more detail. I already raised this with my MP and she wrote to whatever government department was involved and asked them to justify the age cap, and their response didn't justify the age cap, instead simply saying that their calculations suggested anyone over 40 wouldn't stand to benefit as much as people under 40. And I'm only barely paraphrasing.

Surely they would not benefit as much, because it's the LISA rules themselves that forbid it to anyone aged 50 plus to make contributions (when one earns the most, usually).

leitmotif

ikatsi wrote: »

Surely they would not benefit as much, because it's the LISA rules themselves that forbid it to anyone aged 50 plus to make contributions (when one earns the most, usually).

Yes, that's not in question. It's so obvious that the older you are the less you will benefit that it's basically tautological. It adds no new information. But the crucial point was that this was their response to a request to justify the age cap (i.e. the age discrimination). What do you think of it as a justification?

BLB53

The LISA, on the other hand, is a case of some can have an opportunity to get tens of thousands of pounds of taxpayers' money and others will have to do without. And it's this binary opposition that irks me.

Clearly this is to encourage younger people to save - either for a first home purchase or for later years. You can get similar benefits by saving into a pension or sipp - as can younger people.

I wholeheartedly agree with the incentives to get younger people to save as, of all groups, they are the least willing and yet would have the most to gain...not everything in life is necessarily fair or should be made available to everyone, that's why we elect governments to make policy decisions.

bowlhead99

leitmotif wrote: »

Do you (or does anybody) happen to know what the LISA legislation is? I searched online but couldn't find any. I'd like to look into the matter in more detail.

The ISA (Amendment no 2) Regulations 2017 contain the relevant updates to the existing ISA regulations to allow for LISA versions of ISAs to exist.
http://www.legislation.gov.uk/uksi/2017/466/pdfs/uksi_20170466_en.pdf

The relevant piece is in the new section 12B (for those ISAs which are LISAs): that an applicant must be under 40 years of age (unless it's being opened by transfer in from an existing LISA).

And if they keep the account open into subsequent years and want to make new subscriptions they must be under 50 when they go into those subsequent years and be deemed to be making all the same declarations about their status as they did on opening (except replacing under 40 with under 50).

Basically it is a product to help a younger generation of people have access to different tax advantaged savings products. The people for whom the opportunity passes them by because they're 40+ already can stick with the existing tax advantaged products on offer, such as pensions. For example, I am too old for a LISA but have this year put (say) £10000 gross into a pension for a net cost of £4000 due to my particular marginal tax rate; that's a 150% "bonus" compared to the 25% LISA bonus on the £4000.

The pensionable age is slightly different, of course, because if they shift it some people will lose out a little, but the point is they'll still be eligible for state pension just like everyone else, even if they have to wait a bit longer. So they're not losing out completely. The LISA, on the other hand, is a case of some can have an opportunity to get tens of thousands of pounds of taxpayers' money and others will have to do without. And it's this binary opposition that irks me.

I understand what you're saying, but consider this. As someone already aged 40 and ineligible for the product, my state retirement date under current legislation (barring inevitable changes on future research and consultantations) is age 67 while someone a year or two younger than me is set for 68.

Between me and someone a year or so younger there will not be a material difference in life expectancy. But if we both just go through our normal working life paying our normal legally mandated levels of tax and NI for at least 35 of the 50 years or so since we did our GCSEs, I get to take a pension at age 67 and they get it at 68. Assuming we both die on our 90th birthdays, I am literally getting £8000 of extra cash than they are. Some people get to retire at 66, or 65. Or 60 for women until recently. So, all kinds of differences in the money you get in retirement due to a quirk of when you were born vs another person. It is being equalised for people born same year as each other but not between the generations.

The purpose of allowing people to use these LISA's is, yes, to help a younger generation with assistance acquiring a home and to encourage them to put away money for retirement. Obviously, there are some people in that "under 40" bracket for whom it is literally free money, because they already have adequate money to get a home and a good retirement plan, and they can just throw £4k into a LISA out of their savings or investments which were already sitting elsewhere, and it's magically made into 5 by the government handout and then they buy a house with the government money they didn't really need. But for other people it will be a harder slog to save.

They have set an annual cap (the £4k) and an age cap (under 40 at start, under 50 once in) to make sure people are not just cycling huge amounts of existing savings and investments through LISA's to cash in on free money as they approach retirement.

If it was a free for all with no age cap you would just get people in their mid fifties or sixties who'd had literally four or five decades since reaching working age, and could *very* easily have accumulated funds to max out the £4k limit each year, grabbing free money. The overall cost of funding the government assistance (taxpayer assistance) would be even more skewed towards people who already easily had enough money to max out the product, rather than the people who needed the encouragement and assistance to start saving any money.

It is not a perfect system as I have young friends who have high salaries and can easily max the product to get a free grand a year towards their property deposit, while I have older friends on lower salaries who can't use it and are stuck with HTBs and pensions. So, it does not function perfectly as age is not a proper "means" test.

However, age is *something* of a "means" test.

If someone is in their first 19 years out of university or first 24 years after reaching school leaving age, they are the sort of people we might want to help reach life goals and encourage investment for the future. And they are relatively less likely to have accumulated the means to just max out the accounts and grab free cash without effort.

Whereas if someone is three or four or five decades on from leaving school or university he really should have done something about retirement planning by now because he's had decades to acquire his own independent "means". He also had decades where house prices were much lower multiples of annual salaries than they are today. And if you said he could get £1k free towards a house if he diligently saved up £4k, he would say, "hah, I already acquired this £4k decades ago, here it is, now give me the £1k instantly, you bunch of idiots" - it cost him nothing and did not inspire a change in behaviour.

So overall, while I can't use the product, I can see how and why they built it and understand the sensible purpose that the age limit serves.

Personally I don't agree with the inherent support being given to property prices by giving free money to young first time buyers, but that's just the same objection I had to HTB scheme and I can see there are *some* merits in levelling the playing field for first time buyers vs other second time buyers etc (I just think it's the wrong way to do it).

leitmotif

BLB53 wrote: »

Clearly this is to encourage younger people to save - either for a first home purchase or for later years.

There are plenty of people in their early 40s who didn't buy a house back in 2004-2007 because they saw people around them taking out 110% mortgages, interest-only mortgages, paying ridiculous sums for shoddy ex-council houses, etc., and who quite sensibly decided to wait for the bubble to burst. And they may have been saving for years, only to see annual house price rises sometimes above 10%. So they're often back-pedalling, and as a result they're into their 40s with no pension provision because they haven't even got something as basic as a house. Yes, the millennials and Generation Y are faced with high house prices, economic uncertainty and exorbitant university tuition fees, but the tail end of Generation X have all of that (if we'll be paying our kids through university) and we've had no choice to spend tens of thousands on rent over the years. So not being eligible for the LISA feels like a real blow. Besides, is throwing such large amounts of taxpayers' money (potentially £72K per couple) really sensible, especially in an age of supposed austerity?

BLB53 wrote: »

not everything in life is necessarily fair or should be made available to everyone, that's why we elect governments to make policy decisions.

True, but it's a policy decision that wasn't necessary. The age cap seems rather arbitrary. It assumes that the only people that have suffered because of the housing crisis are under 40. And that's simply not true.

leitmotif

bowlhead99 wrote: »

If someone is in their first 19 years out of university or first 24 years after reaching school leaving age, they are the sort of people we might want to help reach life goals and encourage investment for the future. And they are relatively less likely to have accumulated the means to just max out the accounts and grab free cash without effort.

Thanks for the detailed contribution.


To play devil's advocate, wouldn't we be helping them much more if instead of potentially handing out tens of thousands of pounds to young couples we stopped trying to keep the housing bubble inflated (which is surely what this is really about)? The current average house price is just under £220K, which must be over 8 times average annual gross salary. The Help to Buy ISAs already saw the government resorting to the extreme measure of giving away taxpayers' money to keep prices inflated. These LISAs are crazy in that respect. Besides, as long as house prices are like this, can we really expect that anyone but the rich will be saving towards retirement in them? Surely for most couples it'll be swallowed up by the cost of their first home?

bowlhead99 wrote: »

Whereas if someone is three or four or five decades on from leaving school or university he really should have done something about retirement planning by now because he's had decades to acquire his own independent "means".

But not have been able to do so, because of the fact that when annual house price rises have even gone above 10% (on already inflated prices), he/she/they may have been effectively backpedalling. And if you can't even get a house and are having to pay extortionate rents, then how are you supposed to save for a pension?

bowlhead99 wrote: »

He also had decades where house prices were much lower multiples of annual salaries than they are today. And if you said he could get £1k free towards a house if he diligently saved up £4k, he would say, "hah, I already acquired this £4k decades ago, here it is, now give me the £1k instantly, you bunch of idiots" - it cost him nothing and did not inspire a change in behaviour.

Not if he/she was at the tail end of Generation X (now over 40) and didn't buy back in 2004-2007 because prices were insane. (See my response above.)

So overall, while I can't use the product, I can see how and why they built it and understand the sensible purpose that the age limit serves.

bowlhead99 wrote: »

Personally I don't agree with the inherent support being given to property prices by giving free money to young first time buyers, but that's just the same objection I had to HTB scheme and I can see there are *some* merits in levelling the playing field for first time buyers vs other second time buyers etc (I just think it's the wrong way to do it).

I think the most economically sane method of levelling the playing field is to stop addressing things at the demand level and addressing things instead at the supply level. And I don't just mean building more houses, which will take a decade or two to have any significant effect. There are enough houses, because we're living in them (otherwise there'd be tens of thousands of people on the streets). They could fix the housing crisis tomorrow by legislating in such a way that things became less lucrative for landlords and rental properties would flood the market. The changes being made from next month aren't far-reaching enough, only really affecting small-time landlords reliant on the banks' money.

dfbefore30

Apologies if this has been covered elsewhere. I just have a quick question about what to do with my help to buy isa bt April 6th.

I opened the HTB isa last year and by April 6th I will have saved £3400. My intention is to transfer this money into the first cash lifetime isa that becomes available. At the moment that looks like Skipton building society in June. My question is whether I need to keep paying into the HTB isa between now and June? I'd rather not do this as I want to open a separate isa that doesn't have a monthly limit. However, I don't want to risk losing the bonus I've already accrued if I stop paying into it between April and June. Does anyone know if this is a requirement?

System

Sestren wrote: »

I think the article is fairly clear as it stands!

In the LISA's first year, the 25% bonus will be paid at the end of the year. It will be paid on anything up to £4000 deposited into the LISA as well as money transferred over from a HTB ISA. It's a one-off deal to take into account the fact that the LISA is in some ways an 'upgrade' of the HTB (although it's not quite as simple as that, obviously).

In future years, the 25% bonus will be paid monthly on any money paid into the LISA that month.

So, my own plan is to transfer my £1600 HTB ISA into a LISA and make the £4000 maximum subscription on top of that for 17/18. On the 6th April 2018 I'll get a bonus of £1400 (25% of £5600). When the new tax year rolls around I'll transfer another £4000 in, and receive a bonus of £1000 at the end of April 2018. I'll then be fully subscribed for 18/19.

Just a quick query to follow this point up.... When the HTB ISA has been transferred to the LISA ; how dos the LISA know / take account of WHEN the individual contributions were made in to the HTB (ie. Pre / post 6th April 2017) in order to calculate/add the 'HTB bonus' to any balance contributed pre April 6th 2017 -- does it carry all this information over automatically or ?

Cheers

masonic

leitmotif wrote: »

Thanks for the reply. There's a substantial difference with some of those things, though. For example, with rights attained at a certain threshold age, you will attain them just like everyone else at that same age. The pensionable age is slightly different, of course, because if they shift it some people will lose out a little, but the point is they'll still be eligible for state pension just like everyone else, even if they have to wait a bit longer. So they're not losing out completely.

That may not be true. They could lose out completely.

But my point is that the UK Government decides what is and isn't subject to age discrimination laws. It is pointless making an argument that the legislation should apply when the Government has made an exemption.

The LISA, on the other hand, is a case of some can have an opportunity to get tens of thousands of pounds of taxpayers' money and others will have to do without. And it's this binary opposition that irks me.

I don't know why you think the LISA is such a golden opportunity. Most people should probably not use it. It only offers a 25% bonus on contributions and no tax relief. A pension offers a 25% bonus to basic rate taxpayers and non-taxpayers in the form of tax relief. It offers a 67% bonus to higher rate taxpayers. Those who pay into a pension are also protected if they need to claim means tested state benefits in the future because pensions cannot be counted in means testing, whereas money in a LISA must be withdrawn (with a penalty) and spent first. Furthermore, those in employment who are able to save into their pension by salary sacrifice can enjoy bonuses of 47% and 72% as a basic rate or higher rate taxpayer respectively. They could get even more if their employer shares some of the savings they enjoy in employer NI contributions.

Certainly, there is an opportunity to claw back some of that pension tax relief when the pension is drawn down or used to buy an annuity, but most people will pay a lower rate of tax in retirement and will not pay national insurance on their pension income.

People using pensions cost the taxpayer £50 billion per year in tax relief, whereas the LISA will cost the taxpayer less than 0.1% of that.

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I do agree with you on your other comments in relation to the housing market. In my view, the fairest thing to do intergenerationally would have been to let the housing market find its own level (i.e. a significant crash in property prices), rather then endlessly throwing taxpayer money at people to buy property at ridiculous prices. At some point there will be a mean reversion and those holding property at the time will be the losers. It may well be the same people who will "benefit" from being able to access the LISA.