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Press comment: Lifetime Isa flaws exposed as gov relaxes withdrawal penalty

01/05/2020

If you are covering the government’s decision to temporarily reduce the Lifetime Isa withdrawal charge until April 2021, please see the following commentary from Rachael Griffin, financial planning expert at Quilter:

“This is a sensible move to ensure that lifetime Isa savers aren’t unfairly penalised if they need to withdraw money from a Lifetime Isa during this pandemic. Many people are experiencing loss of earnings that is no fault of their own, so we’re pleased that they will be able to use their Lifetime Isa savings if they need them without facing an unfair early withdrawal penalty.

“However, this does expose the flawed design of the Lifetime Isa. They were originally set-up as a halfway house between a retirement savings vehicle and a an Isa product for first time buyers. It was an unusual experiment in blending pensions and young people’s savings into a single vehicle from the then-Chancellor George Osborne, who was keen to explore alternatives to the traditional pension system. In the end that experiment has produced a botched job and now his successors are cleaning up the mess left behind.

“Lifetime Isas are neither an Isa, with the flexibility to withdraw money at any time, or a pension, which has generous tax relief but requires savers to lock-up their money to at least age 55.

“That has led to a situation where they have a penalty for early withdrawal similar to a pension. But crucially, they are treated like an Isa for a means test assessment for Universal Credit. This means that if you apply for Universal Credit, your pension is not included as a potential source of income if you’re under 55 and face a tax penalty to access it. But a Lifetime Isa is treated like an Isa and so does count against you, even though it carries a tax penalty.

“Lifetime Isas were a muddled idea to begin with. While some people have found use for them, such as using it to fund a house deposit, or set money aside for later life if they’ve already hit their pension funding allowance limit, they create as many problems as they solve. Government should look at whether they serve a sensible purpose in the long-term future of the UK’s savings system.

“There are other ways of incentivising pension saving and providing financial help to first time buyers without merging them together in a confusing hybrid product.”

For more information contact

Michael Glenister020 7778 963807469 144535michael.glenister@quilterinvestors.com

Notes to Editors:

About Quilter plc:

Quilter plc is a leading wealth management business in the UK and internationally, helping to create prosperity for the generations of today and tomorrow.

Quilter plc oversees £95.3 billion in customer investments (as at 31 March 2020).

It has an adviser and customer offering spanning: financial advice; investment platforms; multi-asset investment solutions; and discretionary fund management.

The business is comprised of two segments: Advice and Wealth Management and Wealth Platforms.

Advice and Wealth Management encompasses the financial advice business, Quilter Financial Planning; the discretionary fund management business, Quilter Cheviot; and Quilter Investors, the Multi-asset investment solutions business.

Wealth Platforms includes Old Mutual Wealth UK platform and Quilter International, including AAM Advisory in Singapore.

The Old Mutual Wealth Heritage life assurance business was acquired by ReAssure Group Plc on 2 January 2020.

Since its IPO in June 2018, Quilter plc’s businesses have progressively rebranded to Quilter, as follows: 

  • Quilter Financial Planning (previously Intrinsic)
  • Quilter Private Client Advisers (previously Old Mutual Wealth Private Client Advisers)
  • Quilter Financial Advisers (previously Charles Derby Group)
  • Quilter Financial Adviser School
  • Quilter Cheviot
  • Quilter Investors
  • Old Mutual Wealth (becoming Quilter Investment Platform in 2020)
  • Quilter International (previously Old Mutual International)

This press release is for journalists only and should not be relied upon by financial advisers or customers.

Please remember that past performance is not a guide to future performance. The value of investments and the income from them can go down as well as up and investors may not get back any of the amount originally invested. Exchange rate changes may cause the value of overseas investments to rise or fall.

This communication is issued by Quilter plc.  Registered office: Millennium Bridge House, 2 Lambeth Hill, London EC4V 4AJ, United Kingdom. Registered number: 6404270.  Registered in England.