The Treasury have also estimated that this number will have risen to 800,000 by 2021, with around £850m of Government top-ups being granted in year.
The estimates, published on 17 October in a policy impact assessment, also predict there will be a higher growth in take-up from 2020 due to the closure of the ‘Help to Buy’ ISA. In addition, early adopters will deposit £3,500 into the accounts in the 2017/2018 tax year.*
Launching in April 2017, the Lifetime ISA (LISA) allows savers to shelter £4,000 from tax as well as receive a 25% bonus from the Government. It will generally only be used for first-time home buyers or for retirement savings.
The LISA has concerned professionals within the pensions industry as savers may opt-out of workplace schemes in favour of the LISA. However the Government assumptions are based on no one opting out of a workplace pension, while new savers will choose the LISA over a pension.
Tom Mc Phail, head of retirement policy at Hargreaves Lansdown, called for all saving vehicles to be merged into one simple ‘Super ISA’. This is because while the LISA is needed for short-term, the implications of the LISA in the long-term could be ‘messy’:
“The LISA will undoubtedly prove popular with those savers who want the flexibility to save for the long term, benefit from the Government top up but who also want to retain access to their savings.
“In the short-term, having announced the idea it makes sense for the government to press ahead with the launch of the LISA, especially as we know ISA providers will be ready to meet investor demand in 2017.
“However in the longer term, there is clearly more work to do to tidy up the increasingly messy savings landscape for investors. We’d like to see all the different ISAs brought together in one simple ‘super ISA’ and for pension tax relief to be radically reformed for a simpler, fairer and more cost-effective system”
Despite clear details on the policy being published last month, there has still been speculation over whether the industry will be ready.
The Government expects HM Revenue and Customs will spend between £3m and £3.5m to develop software, monitor providers, and administer LISA.
* Source: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/560346/impact_assessment.pdf