In his budget today, the Chancellor introduced a big incentive for younger people to save for the future.
With the new Lifetime ISA,(pdf link) from next April anyone between the ages of 18 and 40 yrs can save as much or as little as they wish up to a maximum of £4,000 per annum. For savings up to the age of 50 yrs, the government will add a 25% bonus i.e a max. of £1,000 at the end of each year.
Therefore someone contributing the maximum from their 18th birthday could save £128,000 by the age of 50 yrs and receive total bonuses of £32,000.
Assuming a modest return on investment of 5% and taking into account platform/fund charges of 0.5%, the pot would grow to around £350,000 by age 50 yrs and the with no further contributions, to £543,000 by the age of 60 yrs. Worth thinking about folks! (calculations via Candid Money)
The ISAs will operate similar to the existing system and individuals could have more than one Lifetime ISA - but only pay into one in any single year. They can choose between cash ISA or Stocks & Shares ISA
The money can be used towards the deposit for a first home worth up to £450,000 or can be saved as a nest egg for retirement and taken tax-free from the age of 60 yrs. Unlike pension savings, withdrawals can be taken at any time before 60 yrs subject to the loss of bonus and also a 5% charge.
A couple can each save up to £4,000 each - so £8,000 max. and get a £2,000 bonus on top.
From next April, the ISA limit - including Lifetime ISA - will rise from £15,240 to £20,000.
More details on this will emerge later in the year following industry consultations.
Thumbs up from me...what do others think - leave a comment below.