The Government’s new Lifetime ISA is set to be a hit with parents and grandparents who are keen to get younger generations into the saving habit, according to new research by The Share Centre.
The Lifetime ISA, which will be available from 6 April 2017, is a new type of saving account aimed at 18- to 40-year-olds. You can save up to £4,000 a year, and any savings you put into the account before your 50th birthday will receive an added 25% bonus (up to £1,000 per year) from the Government. However, if you take out any money before the age of 60 there is a 25% penalty charge based on the amount withdrawn. The exceptions to this are if the money is withdrawn for a first home purchase, or in the event of terminal illness or death.
A survey by The Share Centre has found that 64% of investors over 40* will be encouraging their children or grandchildren to open a Lifetime ISA account, and a further 30% would consider doing so. Just 6% said they would not recommend the product.
The most popular feature of the Lifetime ISA among the over-40s is the government bonus, with 77% saying that this is a reason for recommending the product to younger generations. Far from being put off by a penalty charge for early withdrawal, one in five said that this would be a reason for encouraging children or grandchildren to open a Lifetime ISA, as they wouldn’t be tempted to take out their money too soon.
The over-40s also like the flexibility of the Lifetime ISA product, with 65% saying they would recommend it to younger generations because it helps them to save both for a first home and for retirement. Nearly half the respondents (48%) can see younger family members continuing to use a Lifetime ISA after taking money out for a house purchase.
Having recommended a Lifetime ISA to younger generations, the Bank of Mum and Dad (and indeed the Bank of Grandma and Grandad) are set to help them to fund their account. Nearly two thirds of over-40s (64%) said they will give younger family members money to pay into a Lifetime ISA. Among these, 41% see themselves giving ad hoc lump sums and one in five expect to give payments on a regular basis.
Nearly three quarters (72%) of over-40s believe the new product will be effective in helping more young people to save for their future. In a further endorsement of the Lifetime ISA, 79% say they would have opened one if it had been available to them between the ages of 18 and 40.
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