Whether you’re just setting out on your financial journey, or looking forward to retirement, we live in interesting times. Trying to get your foot on the first rung of the housing ladder? If you live in England or Wales, the average house costs 7.6 times as much as the average income, (up from 3.6 times earnings back in 1997). Anticipating your well-earned retirement? According to the pension, insurance and investment company,  Aegon, “we”* are all on a journey towards a “chilling” age of no retirement because of things like an ageing populationless secure employmentstagnating real wages, people taking on whopping amounts of  student debt and, of course, paying to keep those really expensive roofs over our heads.

These are the sort of worries which former chancellor George Osborne hoped would disappear with a little financial magic and the help of his glamourous assistant, LISA. LISA, (or Lifetime Isa to her friends), is a savings vehicle devised by George Osborne specifically to help people to save up to buy a property, or for retirement, has just been launched. For every four pounds you put into a LISA, the government will top it up by a pound. Savers can pay up to £4,000 into a LISA in each tax year.

LISAs are available now to people between the ages of 18 and 39. After April 2018, LISA owners will be able to withdraw their money penalty-free only if it’s being used to buying a home (worth up to £450,000), or when they’ve reached 60, (or have become terminally ill). You can find more information about LISAs here.

When LISAs were launched, there no banks or building societies chose to offer them, although Hargreaves Lansdown, Nutmeg and the Share Centre all launched their own LISAs from day one. Are the big financial institutions right to be cautious, or are they missing a trick?

While the idea of free money from the government looks attractive, there are catches. The government will only top up your LISA contributions until you’re 50, whereas if you were contributing to a pension, the tax relief on your contributions wouldn’t stop until you stopped contributing, or reached 75, whichever came first. And for workplace pensions, as well as tax relief there are employer contributions. These factors led Ruth Lythe at This is Money to conclude that savers could be worse off by a third after paying into a LISA than they would have been if they’d contributed to a conventional pension scheme.

As for paying into a LISA to build up a home-buying fund, there’s the same danger of unintended consequences that went along with Right to Buy. People need help, because homes are becoming less affordable, but if the government steps in with free money for buyers, won’t that just push prices up even further and aggravate one of the two problems LISA was supposed to solve?

There may be a place for the Lifetime Isa but, at best, it can only help certain people in the right circumstances. Government should (in fact, almost certainly does) realise that solving the deep structural problems of the housing market and demographics will take way more heavy lifting than LISA can manage on her own. You might not have a national economy to sort out, but the same principles apply – there’s no one-size-fits-all solution to sorting out your financial journey, which is why it could pay you to have a word with one of our financial advisors to find your personal roadmap for these interesting times.

 

The information in this article is for general information purposes only and does not constitute financial advice. You must not rely on the information in this article as an alternative to financial advice from an appropriately qualified professional.  If you have any specific questions about any matter you should consult an appropriately qualified professional.

*That “we” looks like a slight overgeneralisation – I have a sneaking suspicion that (to pick an example at random) Aegon’s CEO and executives might still just about be able to make ends meet post-retirement.