The Share Centre is one of a limited number of providers to offer the new Lifetime ISA when it goes live this April. Here, Darren Cornish, Director of Customer Experience, outlines possible reasons for opening a Stocks and Shares Lifetime ISA.
"If you are aged 18-39 and looking to supplement your pension savings, there are a couple of great reasons for considering a Stocks and Shares Lifetime ISA.
"Perhaps the most important reason, which applies to both the Cash and the Stocks and Shares variants of the Lifetime ISA, is the 25% bonus. Indeed, if you're able to invest the full allowance of £4,000 every year from your 18th birthday you could earn £32,000 in 'free' money from the Government by the time you're 50.
"Another attraction of a Stocks and Shares Lifetime ISA is that it's a great opportunity to experience the stock market from an early age and to understand what that entails. Many people keep their long term savings in cash when they could make their money work harder for them through investing. It's certainly a lesson I wish I'd learned earlier in life. By investing in a Stocks and Shares Lifetime ISA, there's an opportunity to see your capital grow, while also receiving dividends which then compound over the years – although of course, investments can also lose value.
"It is also worth looking at a Stocks and Shares Lifetime ISA if you are considering buying your first home in three-to-five years' time. Depending on your circumstances you might find the product has advantages over a Help to Buy ISA. The annual savings limit for a Lifetime ISA is £4,000, compared to £2,400 for the Help to Buy ISA (£3,400 in year one). Also, a Lifetime ISA can be put towards a first home costing up to £450,000; a Help to Buy ISA is for properties up to £450,000 in London but only £250,000 outside of the capital.
"However, if you are saving for your first home, I would only recommend a Stocks and Shares Lifetime ISA if you are able to invest for three to five years given that the value of investments can go down. It's also worth remembering that a Lifetime ISA – whether Cash or Stocks and Shares – can only be used for a first house purchase 12 months after the date of the first payment into the account.
"More broadly, there are other reasons why a Stocks and Shares Lifetime ISA might not be for you. You should take full advantage of your pension before saving into a Lifetime ISA; a workplace pension will have valuable employer contributions, and even a personal pension could be more beneficial if your investment goal is retirement alone.
"If you are not a first time buyer, it is also important to remember that there is a 25% withdrawal charge if you take out any money before your 60th birthday (except in the case of terminal illness). This charge is waived in the first year but only if you withdraw the funds in full and close the account altogether.
"However, we know from our customer research that many see the withdrawal charge as a good deterrent to 'dipping in'. In our survey of investors aged over-40*, 64% said they will encourage children and grandchildren to open an account, and one in five said they actually find the withdrawal charge reassuring.
"Sitting alongside a pension, a Lifetime ISA is a great vehicle for a first home deposit or an additional stream of retirement income, and potentially gives a new generation a chance to experience the power of investing in the stock market."
* The Share Centre surveyed 832 customers aged over 40 between 3 – 9 February 2017. The survey was carried out online.