Open up the Lifetime Isa to over-40s, say fund groups

A campaign group representing large banks and asset managers is lobbying the government to open the Lifetime Isa up to older savers.

The Lifetime Isa can only be opened by those aged between 18-39, although once opened, savers can still pay in up to £4,000 per year until the age of 50. The account offers a 25 per cent bonus from the UK government worth up to a maximum of £1,000 a year — but only if the money is used to fund retirement or to buy a first home worth less than £450,000.

Savers withdrawing their cash for any other purpose will face an exit penalty of 25 per cent of the amount withdrawn, unless they are terminally ill.

While the product has been widely viewed as former chancellor George Osborne’s gift to millennial savers, the Tax Incentivised Savings Association (Tisa) has said the Lisa should be open to those in their 50s.

Tisa, whose members include US fund giants BlackRock and Vanguard, along with high street banks such as HSBC, Lloyds and Barclays, has also called for the removal of the exit penalty.

David Dalton Brown, director-general of Tisa, said that many demographics remained disengaged when it came to saving for retirement, particularly self-employed people who would not have access to workplace pension schemes through an employer.

The Lisa could be used to encourage those without adequate savings and no access to workplace schemes to put aside money for retirement, said Mr Dalton Brown.

“We’re lobbying for the age to be increased because this is a pension for the self-employed,” said Mr Dalton Brown, who said barring those over the age of 40 from opening an account would exclude many self-employed people.

According to data from the Office for National Statistics, 43 per cent of self-employed people are over the age of 50, compared to 27 per cent of those who are directly employed.

Mr Dalton Brown added that Tisa was also lobbying against the exit penalty attached to early withdrawal, which might put people off saving into the account. “We want people to save,” he said.

In March, the City watchdog said it was concerned that investors did not fully understand the exit penalty attached to the Lifetime Isa, with many unable to afford it.

The Financial Conduct Authority, which published final rules governing the savings product in March, said that only about half of those who are yet to own a home could afford an “unexpected bill” of £300 from savings.

While it is still unclear whether the Lisa will be most popular among aspiring homeowners or those looking to boost their pension savings, early figures from Hargreaves Lansdown show that savers in their late thirties have rushed to open accounts.

The fund supermarket, which has been one of only a handful of companies offering the Lisa to savers since its launch in early April, said nearly a fifth of those opening a Lisa in the first month were aged 39.

Critics of the Lisa, including former pensions minister Sir Steve Webb, have previously argued that the bulk of the taxpayer bonuses paid into Lisa accounts will go to those who need it least, with higher earners who already own a home more able to save the maximum £4,000 into their accounts than young renters.