Helen Morrissey, head of retirement analysis, Hargreaves Lansdown: “Lifetime ISAs have the potential to make a huge difference to people’s retirement prospects, but many are blocked because at the age of 40 and above you can’t open one. This means that you miss out on the ability to contribute up to £4,000 per year and get a 25% government bonus as well as taking income tax free. It can act as a great addition, or even alternative to pension saving.
There is appetite for reform though – one in four people said they would use a LISA if they were able to open one after the age of 40. This rose to 29% in the 35-54 age group. The self-employed are a group that could really benefit from LISA reform. It’s a group that has been locked out of auto-enrolment and may be less likely to save into a pension because the money is essentially locked up until at least the age of 55. As a result, self-employed people tend to struggle with their long-term resilience with the most recent findings of the HL Savings and Resilience Barometer showing that just 36% of self-employed households are on track for an adequate pension. Many will look beyond pensions to build their resilience in retirement.
Using a LISA gives them the ability to access the money if they need to, albeit subject to an exit penalty. The 25% bonus also has the same effect as basic rate tax relief on a pension. However, given that many people don’t go self-employed until later in their career, there’s a good chance that many will miss out on being able to open one. More than one in five self-employed people said they would make use of a LISA if they could open one after the age of 40, so it could have a big impact on this group’s long-term resilience.
HL has long called for reform of this important product. Enabling older savers to open a LISA could inject flexibility into people’s savings and transform their retirement outlook. We also believe that reducing the 25% exit penalty to 20% could also lead to more people making use of the product. HL research shows that these reforms could benefit more than 1.2m households with a self-employed person paying basic rate tax.”
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