Using a lifetime ISA to save for retirement

You'll be able to open a lifetime Isa if you're aged between 18 and 40 from April 2017.

You will get a 25% bonus from the government for any savings you put into it before your 50th birthday, up to £4,000 a year (i.e. if you paid in £4,000, you'd get a £1,000 bonus from the government.

The money can be kept in cash or put into stock and investment funds like a normal ISA. You can put in a total of £20,000 each year. This is the new annual savings limit for all ISAs, due in April 2017.

Savers can use the pot plus the bonus to put towards the deposit for their first home, up to the value of £450,000. The deal also allows two first-time buyers to pool their resources and buy a home.

You can withdraw the money at any time, but if you do before you turn 60, you will have to pay a 5% charge, and you'll also lose the government bonus and any interest or growth on this. This is because the savings are designed to be used as retirement income after the age of 60.

If you're not getting contributions from an employer, saving in a lifetime ISA may be your best option.

The lifetime ISA allows you to continue to make contributions and receive the bonus up to the age of 50.

Lifetime ISA v Pension

Pros of using a lifetime ISA

  • A lifetime ISA can be accessed before retirement for a house purchase.
  • It's a good deal for self-employed people who don't benefit from employer contributions into a workplace pension.
  • It's welcome news for parents and grandparents with spare cash who want put money into a lifetime ISA for their dependents
  • You've made the maximum contribution via your workplace pension and you want to supplement retirement savings

Pros of using a pension

  • The best way to save for retirement is still via a workplace pension (you can have both)
  • You want to access your money at age 55 rather than have to wait until you turn 60.
  • You are a higher-rate taxpayer (and therefore qualify for pension tax relief at 40%).

Would you prefer to talk to a female adviser about your finances?

Would you prefer to talk to a female adviser about your finances? A recent report that shows many women are put off seeking financial advice due to it being a male dominated profession.

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