Life Time ISA

Zola.

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/508117/Lifetime_ISA_explained.pdf

I am not sure I understand how this works.

Is it saying that I can put £4k into an account, and after 1 year they will give me a grand to make it £5k?

Then if I empty the account and put £4k back in and wait another year, they will give another grand?

Surely not?

Ed-1

Zola. wrote: »

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/508117/Lifetime_ISA_explained.pdf

I am not sure I understand how this works.

Is it saying that I can put £4k into an account, and after 1 year they will give me a grand to make it £5k?

Then if I empty the account and put £4k back in and wait another year, they will give another grand?

Surely not?

If you empty the account you lose the bonus and face a 5% charge on the amount you withdraw.


It's to encourage long-term saving for a house deposit or retirement like a pension.

System

The bonus could be seen as compound interest over the decades you'll be having it, so its quite naff by itself, unless buying a property.

Having it as a cash isa will perform poorly, but a shares isa could do better

Pension is better as you get tax bonuses and employer contributions

Zola.

Save 4K a year but not touching it until your'e 60? Thats 30 years away for me.

The 25% bonus stops when you are 50? So the account essentially lies dormant interest wise for 10 years?

Mirno

It is my understanding that the "1k" is a bonus paid out on (suitable) withdrawal. That is, if you want to buy a house, or at 60 when you retire.
The bonus is not paid if it's not for either of these two things (there may be others).

There is not "interest" on the bonus - as you don't get it until the money is paid out - it's not yours yet.
This means that inflation erodes the bonuses, making the retirement option somewhat less valuable than you think it might (you get AT LEAST 10 years of erosion, as bonuses stop at 50, but you can't withdraw until 60).
Using it as a home-buying ISA is still an attractive proposition though.

Zola.

I already have a home thankfully, this seems like a bit of a gimmick !

jimjames

Zola. wrote: »

I already have a home thankfully, this seems like a bit of a gimmick !

It's an alternative to, or sits alongside, a pension. It's no more a gimmick than pension tax relief but you may get more from pension depending on your situation.

Zola. wrote: »

Save 4K a year but not touching it until your'e 60? Thats 30 years away for me.

The 25% bonus stops when you are 50? So the account essentially lies dormant interest wise for 10 years?

If you're looking at long term for pension or equivalent then you shouldn't be in cash getting interest, it should be properly invested so the money can grow. They mention 25% bonus but if you are putting money into a pension you get 20% or 40% bonus too but called tax relief.

Ed-1

Mirno wrote: »

It is my understanding that the "1k" is a bonus paid out on (suitable) withdrawal. That is, if you want to buy a house, or at 60 when you retire.
The bonus is not paid if it's not for either of these two things (there may be others).

There is not "interest" on the bonus - as you don't get it until the money is paid out - it's not yours yet.
This means that inflation erodes the bonuses, making the retirement option somewhat less valuable than you think it might (you get AT LEAST 10 years of erosion, as bonuses stop at 50, but you can't withdraw until 60).
Using it as a home-buying ISA is still an attractive proposition though.

You misunderstand. The bonus is added at the end of the tax year - £1 for every £4 deposited into the ISA that tax year.

So contribute £4000 and get a £1000 bonus at the end of that tax year.

colsten

Zola. wrote: »

Save 4K a year but not touching it until your'e 60? Thats 30 years away for me.

I appreciate 30 years is a very long time but hopefully you'll get to 60 and older one day. You may or may not still be working then but you will be needing something to live on when you get to 60 (/65 / 70 / 75 etc etc).

If you don't start putting money away whilst you are young, you could find yourself in very dire straits when you get older. Whether to put the money into a LISA or a pension or something else, or a combination of all those is a moot point and some products might suit you better than others. Whatever product(s) you choose, you have to put substantial amounts of money to one side for a very long time, to live off in your later years.

System

I personally can't see a strong need for more cash in later life, my pension + state pension will be almost the same as my current income, I'll be mortgage free, I'd've gotten marriage and kids paid for.

I acutely needed money when I was younger to get a leg up on the housing market, and get too old and you can't go on holidays

That said it could be worth having for early retirement or holidays later on

MDMD

jimjames wrote: »

It's an alternative to, or sits alongside, a pension. It's no more a gimmick than pension tax relief but you may get more from pension depending on your situation.


If you're looking at long term for pension or equivalent then you shouldn't be in cash getting interest, it should be properly invested so the money can grow. They mention 25% bonus but if you are putting money into a pension you get 20% or 40% bonus too but called tax relief.

20% tax relief is equivalent to 25% top up (pay 4K into a pension and it is grossed up by 1k to 5k)