Synopsis: According to Michael Johnson, a research fellow at the Centre for Policy Studies thinktank, the Government should transform individual savings accounts into lifetime savings accounts which would incorporate both ISA-like and pension-like features.

Date posted: Wednesday, August 06, 2014
Michael Johnson, a research fellow at the Centre for Policy Studies, a think-tank, has said in a paper that he wants the Government to take advantage of the popularity of the individual savings accounts (ISA), by transforming it into a lifetime savings product – the ‘Lifetime ISA’ (LISA). He believes this product would simplify and boost savings of those in their 20s and 30s.

In his paper, he has put forward the following 8 proposals:

i) The Chancellor should merge the cash New ISA (NISA) and stocks and shares NISA into a single Lifetime ISA by say, 2017.

ii) Junior ISAs should be folded into the LISA – so for those under 18, the LISA would be like today’s Junior ISA (JISA).

iii) A LISA should automatically be established when a baby’s name is registered, with a parent-nominated provider – a kick-start lump sum contribution of say, £500 could be offered to lower earning parents.

iv) For every £1 saved in a LISA, the Treasury would contribute 50p, up to an annual allowance of £8,000 (‘incentivised savings’). This Treasury incentive, capped at £4,000, would be paid irrespective of the saver’s taxpaying status. Further contributions, up to a total annual limit of £30,000, would not receive any Treasury incentive. The proposed annual allowance and annual limit would be shared with pension products, i.e the total contributions to both plans should not exceed £30,000 in a single year.

v) Before age 60, permitted withdrawals would be limited to an amount equal to the total nominal value of the original contributions (i.e. not capital gains or accumulated income), provided that 50p were first repaid to the Treasury per £1 withdrawn. After age 60, withdrawals up to the equivalent of the total non-incentivised amount saved would be tax free and further withdrawals representing incentivised savings, and any capital growth or accumulated income would be taxed at the saver’s marginal rate of income tax in the year of withdrawal.

vi) All LISA providers should be required to offer a default fund which has to meet certain criteria – for example dividends should be reinvested and there should be a cap on underlying fund costs, say at 0.35% per annum.

vii) The LISA should be included in the auto-enrolment legislation’s definition of a ‘qualifying scheme’ and thus eligible to receive employer contributions – provided they were taxed as part of the employees income.

viii) Savers should be able to leave unused LISA assets to a beneficiaries’ LISA free of IHT subject to a limit, of say, £100,000.

It will be interesting to see if anything comes of these proposals. The Centre for Policy Studies is not without influence and there is some (although by no means complete) alignment with some of the ideas put forward by pensions minister Steve Webb in relation to pure pensions savings. In the meantime – watch this space!


Why not talk to the professionals about properly managing your finances

Call us on 01273 457100 020 7871 5387 01403 333666

Or email us on

Or just take a look at how we help our clients


Query Form