The Government’s Savings (Government Contributions) Bill recently had its Second Reading. The Bill contains details of the Lifetime ISA (LISA) and the Help-to-Save scheme. The BSA has outlined its position on the Bill.
The Lifetime ISA is designed to be a long-term savings vehicle from which withdrawals can be made for a first-time house purchase or retirement income, while the Help-to-Save scheme is designed to help those receiving in-work benefits to save over a two or four-year period. The Government has decided that the Help-to-Save scheme will be offered by NS&I only.
The BSA supports the intentions behind both these schemes. Both are intended to encourage people to save and this is important in encouraging financial resilience. But we do have concerns. We consider there are dangers for consumers in conflating savings for a house deposit (best accumulated in cash) and saving for retirement (where a mix of assets is appropriate) in a single product - the Lifetime ISA.
We are also concerned about the 25% charge for withdrawal from the LISA which applies for any withdrawal, other than a first time house purchase or after the individual’s 60th birthday. The Help-to-Save scheme has an accumulation period of two years for the bonus which is far too long for those low income households it is aimed at, given their much shorter budgeting cycles.
There have been lots of government interventions in the savings market over the past decade – particularly in the field of product design - and the industry has invested a lot of resource in developing products, only to find that they are overtaken by new initiatives. This was true of the Child Trust Fund, the Saving Gateway and even the Help to Save ISA. It’s incredibly important that the same does not happen with the LISA and Help to Save.
We would like the Government to take action in two areas as this Bill is discussed in Parliament. Firstly, by acknowledging the problems created by conflating savings vehicles for a house deposit and retirement within the Lifetime ISA and taking action to minimise these. Secondly, by recognising that two years is a long period for the Help-to-Save target group of low income working households and reducing the qualification period for the government bonus payment to 12 months.
But we would also like parliamentarians across the political spectrum to recognise the importance of encouraging consumers to save. A cross-party consensus is needed so that such products are supported, allowing providers to be confident in investing in the costly development work which will be needed.