What is the future of the LISA account? Since its introduction, in April 2017, it has proved popular with neither investors nor providers of ISA products. HMRC’s statistics for tax year 17/18, the first year the LISA has been available to investors, shows only 166,000 Lifetime ISA accounts were opened by investors.
Lack of providers offering LISA accounts
Whilst more providers are starting to offer stock and shares ISA’s, there are still relatively few options for investors. This is especially the case for Cash ISA’s, where only, to date, only 3 providers offer Cash ISA’s: Skipton, Nottingham and Newcastle.
I believe LISA accounts are proving to be an unattractive option for providers to offer for a few reasons:
Firstly, there is a lack of investors showing an interest in the product.
With the low yearly subscription limit, £ 4,000.00, they are likely to generate little in the way of fees for the provider.
The LISA account is a complicated product to manage. They require providers to upgrade their platforms to facilitate the requirement to connect to HMRC’s servers. This connectivity is required to verify new investors, claim monthly bonus payments and report life events.
In addition, the process for an investor making their first home purchase puts a significant burden on the provider, whom will have to liaise with the investor’s conveyancer, monitor the house purchase completes within deadlines and manage documentation from the investor and conveyancer.
Lack of interest from investors
Despite initial publicity upon its launch, the LISA seems to have had little in the way of marketing throughout its lifespan. When I’ve spoken to people explaining the merits of the LISA, the response I get is usually one of surprise. This may be explained by the relatively small number of providers currently competing for market share. As the number of providers grows, so, one would imagine, would the marketing and publicity surrounding this product and its benefits.
Additionally, I think there is also confusion among investors as to the purpose and it’s suitability of the LISA for their financial needs. Its hybrid nature, being both an aid to first time home buyers and a pension supplement, make it a product that is not easily understood by the average investor.
Whilst it is clearly an attractive product for first time home buyers, there is some conflict with the Help to buy ISA, which performs a very similar purpose.
Those investors who already have a Help to buy ISA may not see the benefit in a LISA account, as they can only use the government bonus on the purchase of their first home from one of either the LISA or Help to buy ISA, but not both.
That said, the Help to buy ISA will be closed to new investors from December 2019. The removal of this competing product will likely see more young people being attracted to the LISA and its 25% bonus, eligible for withdrawal upon purchase of their first home.
The penalty charge is also another factor that may put some investors off. Unless for the purchase of your first home, turning 60, or terminal illness there is a 25 % charge that must be paid back to HMRC on all withdrawn funds. This pays back the 25 % bonus, but the charge is due on all withdrawn funds, hence will be levied on capital gains and interest as well.
Conclusion
Whilst there has been call from some quarters for the government to scrape the Lifetime ISA, I think this is unlikely and we can expect to see the LISA continue to be available to new investors for the foreseeable future. This would seem to be the case given the government’s aim to encourage pension saving, helping first time home buyers and the closure of the help to buy ISA.