DIY Investor Magazine
/
March 2017
34
THE LIFETIME ISA (LISA) AND OCCUPATIONAL PENSIONS & SIPPS
The last Chancellor of The Exchequer George Osborne
(GO) would probably like to be remembered for his
innovation and encouragement of disruptive alternatives
to banks such as P2P/Crowdfunding and the Innovative
Finance ISA.
However, I am looking at the Lifetime ISA (known as
LISA) which launches in the next financial year from 6th
April 2017.
Its key objective is to help savers buy their first home
with a secondary objective to assist with retirement
funding to age 60 after which the LISA can be drawn
down tax free. In practice GO’s innovative ideas
are proving to be more difficult to implement; firstly
Chancellor Phillip Hammond is now in command of HM
Treasury and in stark contrast to the more flamboyant
GO, ‘Spreadsheet Phil’ is a details man, and much more
cautious.
Watchdog, the Financial Conduct Authority (FCA), has
only just published the rules around operating a LISA
as it worried about product warnings to ensure that
consumers are not misled about exit penalties.
LISA is currently set up to offer those between 18
and 40 the opportunity to save for a first home or to
supplement their retirement savings. For investments of
up to £4,000 per annum the Government (HMRC) will
contribute a 25% ‘bonus’ to some degree in a similar
fashion to the tax relief on Occupational Pensions and
SIPPs. To ape continuing adverts, it is simples - every
£4,000 generates £1,000 government subsidy. The
worry is that people may opt out of auto-enrolment
schemes or other occupational and personal pension
schemes, including SIPPs, in favour of LISA thus
potentially foregoing higher tax relief’s on personal
contributions.
However, Spreadsheet Phil has sharply cut the annual
allowance for contributions to pension schemes to
a miserly £4,000 per annum to combat recycling
under another GO innovation to create a more flexible
retirement benefits system and disrupt the annuity
market. This low threshold can apply when the annual
allowance of £40,000 is tapered for higher earners
down to £10,000, but then further restricted if investors
have taken advantage of pension freedoms to a floor of
£4,000.
FCA wants to see specific warnings about opting out of
pension provision and is worried that the exit penalties
on a LISA may not be fully understood by consumers;
it is therefore pressuring the very few providers who
have announced plans to launch LISA from 6th April -
others are waiting to see how the market develops and
to develop system capabilities for collecting the HMRC
25% handouts.
It is therefore no surprise that platforms with SIPPs
are amongst the first to declare their interest, because
they have systems (albeit needing adaption) to collect
the bonus from HMRC. ISA providers such as fund
managers will not have this expertise which in part
explains the delay in coming to the LISA table; it is
much easier for a SIPP Provider to shut off functionality
than for GIA or ISA providers to step up. Solicitors will
warrant that a property purchase is indeed the first by
the purchaser thereby allowing investors to draw down
Francis Moore
Francis is an expert in pensions and savings. Francis created the first self-invested personal pension (SIPP) and has been at the
forefront of developments in the SIPP market; self-invested free standing AVC’s for those in occupations pension schemes. A driver for
individuals looking to drive their pension’s provision. Francis understands that tax incentivised products such as SIPPs and ISAs stand
together for retirement provision. If tax incentivised products can assist first time buyers then that is applauded despite the tax risks. A
real evangelist for individuals to take power over their investments and pensions.
‘THE OPPORTUNITY TO SAVE FOR A FIRST HOME OR TO
SUPPLEMENT THEIR RETIREMENT SAVINGS’
