For young people, buying your first home may seem like a long way off and retirement a lifetime away. However thanks to the new Lifetime ISA there has never been a better time to start considering your options and preparing for both.
The new Lifetime ISA, due to be launched in April 2017 is designed to help you buy your first home, save for retirement or for the savvy investor do both.
Available only to people between the age of 18 and 39, any money saved in a LISA before you turn 50 will not only receive the usual ISA tax-free growth but also receive an added 25% bonus from the government.
The aim of the LISA is to help young people save flexibly during their lives. LISA savers will be able to contribute up to £4,000 a year, which the government will top-up with a 25% bonus. Bonuses will be paid annually in the first year, but from the 2018/19 tax year onwards the bonus will be paid every month, so that you benefit from compound growth. In contrast to the Help to Buy ISA, individuals can put in £4,000 in a lump sum or over a series of instalments across the year.
Helping you buy your first home
For first-time buyers it can be difficult to save a big deposit to be able to secure a mortgage. By opening a LISA you can use the amount you have saved (plus the bonus on top) towards your first house up to the value of £450,000, after you have held the LISA for 12 months or more.
Similar to the Help to Buy ISA, the LISA is an individual product meaning that if you are a first-time buyer purchasing a house with another first-time buyer you can both open a LISA to reap the benefits.
If you already own a Help to Buy ISA, you can transfer those savings into the Lifetime ISA in 2017, or continue saving into both. However, you will only be able to use the bonus from one towards buying a house.
Helping you save for retirement
It is never too early to prepare for your retirement and when starting to think about planning for your retirement it is worth considering all the options available to you.
Similar to a pension the LISA is a vehicle to save for retirement. The fundamental difference between the two is: with a pension, under current legislation you can enter retirement at age 55 to draw your benefits. With a LISA you are restricted to age 60 before you can withdraw the money with the 25% bonus. You are able to draw your money at any time before you turn 60, but you will lose the government bonus (and any interest or growth on this). You will also have to pay a 5% charge. To find out which might be most suited to you, you should seek financial advice to consider the different options and potential benefits.