Lifetime ISAs and Benefits

edited 30 November -1 at 1:00AM in ISAs & Tax-free Savings
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TrinityxTrinityx Forumite
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edited 30 November -1 at 1:00AM in ISAs & Tax-free Savings
I wonder if anyone is able to point me to this information.

Let's say I have £10000 in my Lifetime ISA in two years time. I lose my job and I apply for JSA.

I know that ISAs affect my benefits​, but will the Lifetime ISA do the same? What worries me is being told to that I have money in the LISA, therefore I get no benefits, and then I am forced to withdraw the money with the penalty. Does anyone know?
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  • TheShapeTheShape Forumite
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    It is my understanding that LISAs are taken into account when applying for means-tested benefits such as JSA. Money within a pension is not so something to consider. However, if you have paid sufficient NI contributions you would claim Contribution based JSA for which capital/savings are disregarded.
  • bowlhead99bowlhead99 Forumite
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    The money in any ISA, including a LISA, is yours to spend as you wish. So, anyone doing a "means test" on you to see how much money you have, will take it into account when adding up your total assets.

    As you say, if you take the money out of a LISA for general spending (like paying for rent and bills while unemployed) you will suffer a penalty which is a bit bigger than the LISA bonus you've been given. So, it does not function very well as an "emergency fund" and you would be better with "normal" ISAs if you're going to use it for that. It is a bit of a gamble to lock money away in hope of a bonus of you don't think you'll get through to retirement without needing to spend it.

    Alternatively if you are planning to put the money away for retirement, you could just use a pension, which gives you tax relief when you contribute into it, and is NOT counted for benefits means testing because you don't have an option to pay a penalty and access it.
  • dunstonhdunstonh Forumite
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    This is one of the reasons why providers have been making decisions not to offer it. For example, the same amount into a pension would not be included in any means tests.

    And if it is emergency fund money, then its likely better off in a cash ISA. If its medium term money then its likely better off in a S&S ISA.

    LISAs have a niche. It can be good for housebuyers and for some long term money it can offer a viable option for some for very long term but you need to look at the objectives and whether the alternative tax wrappers are more suitable.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • I don't want to use the LISA as an emergency fund, mind. But I am going to be buying a house (possibly). It just feels wrong to be told you are not getting help because of money that really should not be used other than... Well the two purposes the government set it for.

    Mind, I am paying NI, and I do have a job, but I try to think ahead. There was nothing about the LISA that put me off until now – I know about the penalty and such, but the fact that you might be negated help because of it does put me off.
  • dunstonhdunstonh Forumite
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    It just feels wrong to be told you are not getting help because of money that really should not be used other than... Well the two purposes the government set it for.

    Savings are savings. Whether the intention is to use them for house purchase or whatever. They should be included in the means test.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • bowlhead99bowlhead99 Forumite
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    Trinityx wrote: »
    Mind, I am paying NI, and I do have a job, but I try to think ahead. There was nothing about the LISA that put me off until now – I know about the penalty and such, but the fact that you might be negated help because of it does put me off.

    Yes, I see your point but it is fair enough that you are 'negated help' due to your having a pile of accessible cash (most of the penalty you'd have to pay is just the free money the government gave you anyway).

    If you're saving money up to buy a house and have ten thousand quid in the bank for that purpose (whether in a normal current account or ISA or LISA), it's fair to say that i and the other taxpayers don't want to pay you a load of benefits when you suddenly cry poverty. We would rather pay those benefits to people who find themselves with similar levels of income to what you have and who *don't* also have ten thousand quid in the bank.

    As someone mentioned above, you can currently get jobseekers' allowance based on contribution record without your "means" coming into it . The means tested stuff which only allows you to have a moderate amount of savings before holding back some potential welfare benefits can apply to other things.

    But basically the philosophy is, you can't say you're poor "because I've got loads of money but I've put it over to one side because I aspire to spend it on buying a house, so please give me money towards my day-to-day living costs...". :)
  • PlusPlus Forumite
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    bowlhead99 wrote: »
    But basically the philosophy is, you can't say you're poor "because I've got loads of money but I've put it over to one side because I aspire to spend it on buying a house, so please give me money towards my day-to-day living costs...". :)

    But if you converted that money into a fraction of a house, the state won't take it off you - they'll even help with the mortgage interest. Or if you put the money in a pension wrapper, they'll ignore it.

    Illiquidity pays, basically.
  • bowlhead99bowlhead99 Forumite
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    Yes, if you spent your money on your own home or locked it up as part of pension planning, you can't get hold of it to pay for your bread and water and electric bill etc. So the government takes pity on you.

    Whereas if you have tens or hundreds of thousands stashed in an account you can access but hope to one day spend it on a house or a new car or a wedding for your kids or whatever your objective is for that money - but then you find yourself without money to live on - then you'll just have to draw it out if you're unable to cut down in other areas or use a credit card or other temporary finance to get by.
  • edited 29 April 2017 at 9:14PM
    TrinityxTrinityx Forumite
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    edited 29 April 2017 at 9:14PM
    bowlhead99 wrote: »
    Yes, if you spent your money on your own home or locked it up as part of pension planning, you can't get hold of it to pay for your bread and water and electric bill etc. So the government takes pity on you.

    Whereas if you have tens or hundreds of thousands stashed in an account you can access but hope to one day spend it on a house or a new car or a wedding for your kids or whatever your objective is for that money - but then you find yourself without money to live on - then you'll just have to draw it out if you're unable to cut down in other areas or use a credit card or other temporary finance to get by.

    This is not the same thing. A Lifetime ISA is there for you to use either for a house or for retirement. It isn't there to fund a wedding or buy a new car, etc.

    Let's not forget that the plan was to scrap pensions all together and make people save into ISAs, not even Lifetime ISAs. That would mean that basically anyone saving for retirement would not get benefits. So the money would come straight off your retirement. If that original plan went through, God help you if your company went through restructuring, it would impact your retirement as well as your savings.

    And the government isn't simply taking back their bonus, they are taking away also part of your own hard earned money.

    If you are creating a product that can only be used for two things, then you shouldn't then say to people, "Oh well, we told you that the money is for retirement or a house, but since you have it, now you got to use it instead of your benefits AND we will take some of your own money off your hands as well while at it."

    I think the premise of pushing a product something for retirement then basically making you lose money for using it for something else because the same body doesn't really give you a choice is not the way to go about it.
  • edited 29 April 2017 at 9:56PM
    masonicmasonic Forumite
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    edited 29 April 2017 at 9:56PM
    Trinityx wrote: »
    This is not the same thing. A Lifetime ISA is there for you to use either for a house or for retirement. It isn't there to fund a wedding or buy a new car, etc.
    There are provisions for other life events being catered for by the LISA (penalty free) in the future, a wedding being high on the list of possibilities. It can be used in an emergency to fund other things, subject to the penalty. So it has quite a lot of flexibility.
    Let's not forget that the plan was to scrap pensions all together and make people save into ISAs, not even Lifetime ISAs.
    There was some speculation about that. None of it very convincing.
    That would mean that basically anyone saving for retirement would not get benefits. So the money would come straight off your retirement. If that original plan went through,
    That's one of the reasons why it wasn't very convincing. Pensions aren't going anywhere and it is unlikely there was any serious plan to axe them.
    God help you if your company went through restructuring, it would impact your retirement as well as your savings.
    Losing ones job will normally impact the savings and investments of someone who has the means to support themselves, until such time as they really need to fall back on money from other taxpayers. That means using funds that may have been intended for something else. The exception to this is money saved in a pension, which is locked up tightly and cannot be accessed.

    A company is not needed for an individual to have a pension or invest in one. Anyone at risk and concerned about protecting their retirement savings in the event of unemployment should use a pension and not a LISA.
    And the government isn't simply taking back their bonus, they are taking away also part of your own hard earned money.
    Yes, you could compare with fixed rate ISAs, which have a penalty for early access, except this is a really long term fix.
    If you are creating a product that can only be used for two things, then you shouldn't then say to people, "Oh well, we told you that the money is for retirement or a house, but since you have it, now you got to use it instead of your benefits AND we will take some of your own money off your hands as well while at it."

    I think the premise of pushing a product something for retirement then basically making you lose money for using it for something else because the same body doesn't really give you a choice is not the way to go about it.
    Nobody here created that product, so perhaps it is not very productive to complain to us.

    But it would be as well to remind you that use of a LISA is entirely optional. If you don't like the way they work, there are alternatives - for retirement, you could use some combination of pension and S&S ISA, and for saving for a house deposit, you could use a HTB ISA.
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