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Smarterly launches Lifetime ISA

Millennials now able to save for first home through payroll deduction

  • Contributions to a Lifetime ISA attract a 25% bonus, irrespective of tax-paying status
  • Particularly popular among younger employees to help them save for their first home
  • Set to enhance employers’ financial wellbeing programmes, the Smarterly Lifetime ISA is believed to be the first available through payroll deduction

The first payroll-deducted LISA (Lifetime Individual Savings Account) is now available through Smarterly, the workplace savings platform that uses artificial intelligence to design and monitor investment portfolios for employees. The launch supports employers’ financial wellbeing programmes.

The Lifetime ISA is popular, particularly for younger employees, because it combines a 25% upfront bonus with access to savings to help purchase a first home.

Home ownership is, for many of the under-40s, their financial priority1. Alternatively, savings may be kept until retirement, when they become accessible entirely free of tax. Saving in a Lifetime ISA from the age of 18 until 50, could accumulate up to £32,000 in Government-funded bonuses, on top of any investment returns.

By using payroll deduction, employers have the option to make contributions on behalf of employees, as an additional savings vehicle to an employer funded pension contribution. With millennials predicted to make up 50% of the global workforce by 20202 and 75% by 20253, any assistance in helping them get on the property ladder is likely to be well received as part of a clear employee wellbeing strategy.

Michael Johnson, Research Fellow and Smarterly Corporate Affairs and Policy Adviser, said: “With 16 million UK adults having less than £100 in savings4, and over 50% of the UK workforce borrowing money to pay for basic needs5, we need more engaging propositions to turn the UK into a nation of savers. Innovation is essential. 2015’s widely welcomed pensions freedoms facilitated considerable individual flexibility in retirement, but workplace schemes have been slow to personalise how they interact with the individual”.

Phil Hollingdale, Co-Founder of Smarterly, added: “We believe this is the first Lifetime ISA available through payroll deduction. There are clear advantages to offering LISAs in the workplace. Not only are they popular among employees, particularly the young, allowing contributions directly from net pay makes the savings process easy. And the government top up, alongside potential investment returns, is a very attractive option.

“Additionally, by offering a product that’s geared towards saving for a home, you can engage young people, get them into the savings habit and then allow them to continue saving for retirement later on.”

The Lifetime ISA’s key features

  • A LISA may be opened by anyone between the age of 18 and 39.
  • Maximum contribution: £4,000 per year, paid out of post-tax income.
  • The Government provides a bonus of 25% of whatever is saved (i.e. up to a maximum of £1,000 per year), up to the age of 50.
  • The earliest that LISA assets may be accessed is one year after first subscription.
  • Penalty-free access is permitted prior to the 60th birthday (and bonuses are retained):
  1. for the purchase of the first UK home (to be lived in, not for rental), up to a value of £450,000;
  2. in event of terminal illness (with less than 12 months to live); and
  3. when transferring to another Lifetime ISA with a different provider.
  • Any other pre-60 withdrawals incur a 25% penalty (i.e. £25 deducted from every £100 withdrawn, leaving £75 net).
  • Upon death, the LISA terminates with no subsequent withdrawal charges.
  • Partners may combine their LISAs to buy a home.
  • A Help to Buy ISA may be open at the same time as a LISA, but only one can be used to purchase a property. Help to Buy funds may be transferred into a LISA.
 
Sources
1https://www.ft.com/content/d722e3a8-d6ed-11e5-8887-98e7feb46f27
2KPMG’s Meet the Millennials, June 2017
3EY’s The future of work is changing. Will your workforce be ready? November 2017
4Money Advice Service (MAS), September 2016
5Neyber’s DNA of Financial Wellbeing 2018
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