Emerging LISA future rules

masonic

https://forums.moneysavingexpert.com/discussion/comment/81862610#Comment_81862610

Making it more like the old HTB ISA (where there simply is no bonus if it isn't used for the intended purpose) doesn't really impact on retirement saving at all (no more than launching any other product that has a specific purpose that isn't retirement saving). So if we consider this new product retirement-neutral (i.e. people will just carry on as they were), then the question is whether the HTB ISA type bonus is better than the LISA type bonus. I think that's arguable. It will make no difference to those who can use it for a first time house purchase. Those who could instead hold the money into their later years will be 25% worse off, while those who have to withdraw early will be 6.25% better off. It seems to me it would make far more sense and save a lot of time and money just to reduce the LISA penalty to 20% (as it was during Covid) and be done with it.

eskbanker

It seems to me it would make far more sense and save a lot of time and money just to reduce the LISA penalty to 20% (as it was during Covid) and be done with it.

That would certainly be a straightforward way of neutralising the effect of the withdrawal penalty, but I'd formed the impression that the desire for LISA reform went further than simply doing that - time will tell once the consultation documentation is issued, but the previous cross-party review considered a range of issues, including, for example, whether increasing the property price cap would be an appropriate use of taxpayer funds:

https://committees.parliament.uk/publications/48542/documents/254327/default/

masonic

https://forums.moneysavingexpert.com/discussion/comment/81863049#Comment_81863049

There's certainly an argument that the money could be better targeted. But I did see in the latest HMRC savings newsletter that anyone who holds a LISA will be able to continue to use it indefinitely, so it will be a long road to removing the facility from those not "in need" of it.

eskbanker

https://forums.moneysavingexpert.com/discussion/comment/81863416#Comment_81863416

Yes, I think they felt the need to reassure LISA holders that they didn't need to abandon the product because of the uncertainty created by the consultation, but the fact that LISA continues to be available for the foreseeable future doesn't in itself say anything about how they might design the replacement product - I'm assuming that this will effectively mirror how LISA was introduced without withdrawing the HTB ISA product, i.e. even though there'll be two products in similar territory, different rules can be applied.

masonic

https://forums.moneysavingexpert.com/discussion/comment/81863424#Comment_81863424

My point was really that whatever they decide to do to better target the new product to the more deserving of help, it isn't going to make a meaningful difference for a generation or two on the amount they spend on bonuses, as many of those excluded from the new product will be able to go on using the existing one.

eskbanker

https://forums.moneysavingexpert.com/discussion/comment/81863428#Comment_81863428

Yes, I presume that it'll be similar to the (ongoing) HTB/LISA parallel operation, during which there are trade-offs between the two, rather than one being objectively better than the other, and so which suits an individual better will depend on circumstances.

My point was really that I don't believe that not penalising withdrawals is actually the fundamental or sole objective of the new product, but simply an appealing feature of it, and that there'll be other issues factoring into its design, one of which could be consideration of taxpayer value. Last year's review may or may not feed into this year's consultation, either wholly or in part though!

masonic

https://forums.moneysavingexpert.com/discussion/comment/81863442#Comment_81863442

Well yes, but I remain sceptical that anything generally perceived as "good" beyond the withdrawal penalty reform (or potentially the 40 age limit) is likely to come out of the consultation. Though I do accept moving the goalposts in a detrimental way to existing product holders would not be feasible, so they don't have much room for manoeuvre in clamping down on wasted taxpayer money. I suppose the deferral of payment of the bonus until the property transaction is in play will save them some money and perhaps this is the primary motivation for a new product rather than a reformed one.

eskbanker

https://forums.moneysavingexpert.com/discussion/comment/81863469#Comment_81863469

Yes, the consultation document should give some sort of indication about what they're hoping to achieve by this, and whether it's planned to favour first time buyers or the government - as things stand, there's only really the announcement that it'll be "a new, simpler ISA product to support first time buyers to buy a home" and subsequent clarification of HTB-style bonus deferral, so plenty of room for speculation until there's something more concrete to go on!

intalex

I imagine ISA managers will ideally want to abolish the HTB/LISA products altogether rather than carrying around the burden of a limited customer base without growth prospects, especially if all property-intentioned LISA holders are duly incentivised to migrate to the new FTB product (through abolishing early withdrawal surcharge by deferring the bonus, and possibly increasing house price threshold).

That would leave only the retirement-intentioned and (like me) undecided LISA holders. For the retirement-intentioned, an option to merge into a SIPP may not be the worst option as it would offer the incentive of earlier access at age 57 but at the trade-off of only 25% being tax-free (unless someone can think of an easy way to tag the migrated LISA component and allow 100% of it that component to be withdrawn tax-free).

If the new FTB product and transition is scheduled for April 2028, I would say that's enough notice to ask the undecided to decide between property and retirement within the next 2 years, or give them the option to withdraw their balances (less bonuses) but keep any growth/shrinkage without penalties as was implemented temporarily not long ago.

masonic

https://forums.moneysavingexpert.com/discussion/comment/81863654#Comment_81863654

HMRC had already committed to keeping the scheme running indefinitely for existing LISA holders, and I doubt the providers that already offer S&S LISAs (which usually attract a separate platform fee) would be in a rush to drive customers away or consolidate into a single product that could be moved away more freely. AJ Bell is pretty much guaranteed my custom for the next 15 years (but don't tell them that LOL)

If an option was offered to fold into a SIPP, then I would not take it. Not only is it less tax efficient to get only 25% over the PA tax free (and of course there is an overall limit on tax free cash), but if a larger withdrawal were made it could result in higher rate tax being incurred when only the equivalent of basic rate tax relief was obtained on the way in. I also doubt that my SIPP access age will still be 57 by the time I get there in 11 years.

I still have FTB status and I would not be willing to commit to one path or the other in the next 2 years (and HMRC confirms I cannot be compelled to do so), even though I think retirement is the more likely use in my case. The only scenario where I could envisage I'd exit the LISA scheme is a transfer to a normal S&S ISA without bonus clawback, which I think is rather unlikely. I might take up the new product in 2028 to run alongside depending on the features and terms, but I'm under no illusion that I'd be the target market.