A New way of saving for your first home that will leave you inspired

With the 2016 budget having been announced, George Osborne has unveiled a new Individualised Saving Account aka an ISA specifically for those looking to buy a house or save for their pension, The ‘Lifetime ISA’ which will launch in 2017 will see savers receiving a 25% bonus from the Government on deposits up to £4,000 a year.

Anyone who is under the age of 40 by April 2017 can take advantage of the ISA. If the lifetime ISA is being used to buy a house you have to wait at least a year before you can withdraw it and those saving for pensions will have to wait until after the age of 60 to see the benefits. Just like most other ISA’s you are allowed to withdraw from the ‘Lifetime ISA’ at any point but if you do you’ll forfeit any government bonuses.

People saving under the Help to Buy ISA are able to move their savings into a Lifetime ISA as the Help to Buy version will be closing in November 2019. The option of a lifetime ISA poses quite a difficult decision on a lot of younger savers who will have to make a decision between saving for a house and saving for their future with the new ISA.

If you do choose to save into a lifetime ISA you can save up to £4,000 a year for each £4 that you save you’ll be rewarded with £1, and the cash saved (including the bonus) is tax-free. So if you saved the full £4,000 within a year you would get a £1,000 bonus from that year.

Nigel Aston who is the head of European defined contribution at Slate Street Global Advisors said that the new lifetime ISA is not expected to have a great impact on the overall level of savings. He went on to say “We continue to believe that the most effective way of encouraging retirement saving will be low cost, well governed workplace pension schemes, with automatic enrollment and good quality default funds.”

While the lifetime ISA can be a great help for those with money to save some have complained that it does not nothing to address the root causes of low savings and that there is little help for those with low wages and high debt.

Some people have questioned that this option may put people off saving for a pension in any other way which can lead them to saving less in the long-term by going for cash over investments. This could lead to people passing up on the valuable element of pension contributions from an employer. Within workplace schemes your contributions can be matched – or sometimes bettered – and these employer contributions can make a huge difference between saving enough money into your pension or not.

There are positives and negatives to the new scheme of lifetime ISA’s and while choosing the save for a home can be a massive benefit the pension scheme is a little trickier depending on how much spare income you have. For those who have money to spare after saving into their workplace pension it can be a huge benefit, but for others it might not be so it’s worth really thinking about it before committing.