Parliamentary briefing

Savings (Government Constributions) Bill

Introduction

The Lifetime ISA (LISA) and the Help-to-Save schemes are outlined in the Government’s Savings
(Government Contributions) Bill, which has its Second Reading shortly. The Lifetime Isa will 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 BSA supports the intentions behind both these schemes. Both are intended to encourage
people to save and this is important in engendering financial resilience. However, 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 (best in stocks and shares) in a
single product - the Lifetime ISA. The Help-to-Save scheme has an accumulation period of two
years which is too long, given the much shorter budgeting horizons of those on lower incomes,
at whom the product is to be aimed.

There have been many 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developing products, only to find that they are superseded by subsequent initiatives. This was
true of the Child Trust Fund, the Saving Gateway and even the Help to Save ISA. It is important
that the same does not happen with the LISA and Help to Save.

The Lifetime ISA

When saving for a specific purpose, certain products will suit the savings goal better than
others. Saving for a house deposit over the short to medium term is generally best done by
using an easily accessible cash savings account, not affected by stock market performance.
Longer-term saving for retirement is best achieved by a mixed approach to investment,
predominantly based on stocks and shares, which generally increase their value over the long
term time, although may experience some fall in value in the short term.

The Government’s Lifetime ISA conflates both saving for a house deposit and saving for
retirement into one product, giving rise to risk that the product will serve neither goal well and
may in fact harm consumers.

It is also essential that the end product is clear and easily understood by the public. We are
therefore very concerned about a number of aspects of the current proposals which risk
confusing consumers, leading to misunderstanding and mis-buying. The current scale of
charges for withdrawal is also punitive.

Help to Save

The intended scope of the Help-to-Save scheme, aimed at those on in-work benefits, is quite
modest. The Treasury estimates the market at £75million, which is small in a cash savings
market of over £1trillion.

The Help-to-Save scheme promises a generous government bonus of 50% on cash savings of
up to £50 per month, so a £600 bonus after two years. There will then be an option for savers
to continue to save for another two years and earn a further bonus of up to £600. Our main
concerns about the product are its limited scope, i.e. being confined to those on in-work
benefits, and the two year qualifying period, which is a long time for those on lower incomes
who tend to budget over much shorter timescales.

It is important to express these concerns at an early stage in the debate of the Bill, although
the detail of both products will be in the secondary legislation.

What are we asking for?

We would like the Government to:

  • Acknowledge the problems created by conflating within the Lifetime ISA savings vehicles for a house deposit and retirement and to take action to minimise these.
  • Recognise that two years is a long period for the Help-to-Save target group and reduce the qualification period for the government bonus payment to 12 months

We want all Parliamentary parties to:

  • Commit to supporting these products over the medium-term (help to save) to longterm(Lifetime ISA), allowing providers to be confident in investing in the costly development work which will be needed to offer these new products.