Proposals included scrapping the lifetime ISA. Originally introduced in 2016, the lifetime ISA pays people under 40 an annual 25% government bonus on contributions up to £4,000 per annum, so long as the money is used to buy a house or to fund retirement.
The product has not proved popular within the pensions industry and this was noted, with the household finances inquiry confirming it “has received strong criticism of the lifetime ISA over its complexity, its perverse incentives, its lack of complementarity with the pensions saving landscape and its apparent lack of popularity with the industry and pension savers”. It said “the Government should abolish it”.
Although I myself am not a huge fan of the lifetime ISA – it’s another layer of complexity in an already complex pensions and savings market - there is also the argument that getting rid of them so quickly after their introduction could dent consumer confidence. As per my last article, should we just “stop messing”, giving consumers the opportunity to learn, understand and be able to make decisions regarding their future planning and savings?
However, one area highlighted in the report that I’d be more than happy for the Government to “mess” with would be the lifetime allowance. MPs called for the lifetime allowance to be scrapped, and I would back this change whole-heartedly. We try and encourage people to save for their retirement, but then force them down a route where they end up having to pay for advice to check if they have extra tax to pay. And it’s not just your high net worth investors who are impacted by this, with reductions in the allowance in recent years, it is more and more affecting middle management and our typical type clients, those that are doing well, but are certainly not super wealthy.
However, the comment in the report that the Government “should give serious consideration to replacing the lifetime allowance with a lower annual allowance” is a concern. We’re increasingly finding clients impacted by the tapered annual allowance and this potentially now looks like the future landscape for most savers, with one person within the report suggesting limiting contributions to between £8,000 and £10,000 per annum. With many clients financial life cycle currently being one of repaying debt and then moving onto serious retirement savings, going forward, with tax relievable pension contributions potentially being limited, they may now need to be thinking about balancing the two objectives right through their working lives.
Whatever, I’m afraid that it doesn’t look like the role of Financial Planner is going to be redundant any time soon. Guiding our clients through the maze looks like it will continue for some time yet.
Nicola Watts APFS Chartered Financial Planner, Chartered Wealth Manager, CFPTM Chartered FSCI - director of Jane Smith Financial Planning
After joining the family business in 2000, Nicola qualified to provide advice in 2001, and has been a director of the business since 2006. Since the retirement of her mother (Jane Smith), Nicola bears sole responsibility for the management of the firm, and the advice provided to clients. Nicola is married to David and has two young children, Emily and Olivia, and Poppy the black labrador.