Lifetime ISA & Pensions

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You may remember from the Budget earlier this year that the Government announced the introduction of the Lifetime ISA (L-ISA).

The Lifetime ISA is intended to sit alongside the pension arrangements of an individual, with the aim of boosting retirement income. The L-ISA is also encouraged to be used for saving for a deposit towards a first home for those not already on the property ladder.

The Lifetime ISA is aimed at those aged 18 to 40, and has a current annual savings limit of £4,000. There is no specific amount that you have to save each month but you can contribute up to the maximum £4,000 however you wish during the tax year.

The appeal of the -ISA is that any savings that you put into the L-ISA before your 50th Birthday will be awarded a 25% bonus from the Government. You can then withdraw all your savings from the L-ISA on or after your 60th Birthday, and the whole fund will be free of tax.

There is a downside however, if you choose to remove all of the savings from the L-ISA before your 60th Birthday then you will have to forfeit the Government bonus, any interest or growth received on the bonus as well as pay a 5% charge. If you are going to utilise a L-ISA be sure that you won’t want to access the funds before your 60th Birthday.

On the positive side, any person that is fortunate enough to be able to save into both a pension and a L-ISA would be able to have a very flexible and tax-efficient lifetime strategy in place. Theoretically, it is possible for a person to begin saving in to a L-ISA at the age of 18, four years before auto-enrolment is introduced, and this could create a fund of £19,000 plus any growth!

The L-ISA is also appealing to the self-employed as its flexibility could suit an individual that has variable earnings and isn’t offered the auto-enrolment option.

If you’d like to find out more about the L-ISA or savings in general, or maybe you’d like to talk about retirement planning please feel free to get in touch. You can call us on 01332 223888 or complete the contact form below and we will get back to you as soon as we possible can.

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