Firms will be required to remind consumers of the importance of ensuring an “appropriate mix of assets is held in the LISA”.
They will also have to flag up:
• the early withdrawal charge and any other charges.
• Danger of potentially losing an employer contribution to a workplace pension for which they may be eligible, where they choose to open a LISA instead
The FCA has proposed that providers will have to offer a 30 day cancellation period after selling the LISA.
The LISA was announced in the 2016 Budget and the government intends for it to be available from April 2017. The LISA is designed to allow people under the age of 40 to save or invest flexibly to either provide a deposit for a first home or save for retirement.
The FCA said it is proposing to regulate the LISA in the same way as other ISA products, with some additional protections designed to reflect the dual purpose of a LISA and the restrictions on accessing funds.
The FCA publication stated: “Our proposals require firms to provide investors with some risk warnings and prompts around the LISA. Given that firms will have to develop new material to promote and explain the LISA, a new product, to investors regardless of our rules, we do not regard the provision of these risk warnings and prompts as a material additional compliance cost to firms.
“Our proposals to set a 30-day cancellation period for some types of LISA contracts may result in firms experiencing a higher rate of cancellations without charge.
“However, given that this is a new product, we cannot reasonably estimate the number of people that may use the additional 16 days to cancel their LISA. We note that it’s likely that most cancellations will result in shifting investment to other savings vehicles.”
From April 2017, investors under the age of 40 will be able to open a LISA account and do the following:
• Pay in up to £4,000 each tax year up to age of 50 (the Government will add a 25% bonus to these contributions).
• Use the accumulated funds, including the Government bonus, to help buy first home worth up to £450,000 at any time from 12 months after first saving into the account.
• Withdraw the accumulated funds at any time to purchase a first home or in case of terminal illness, or after the age of 60.
• However, investors will lose 25% of any money they withdraw before age 60 for any other purpose.
Responses and finalised rules are expected to be published in March 2017.