- Government plans offer no new benefit to consumers, AJ Bell says in response to government consultation on launching First Time Buyer ISA to replace Lifetime ISA
- Proposals would remove benefit of upfront bonus and reduce long-term retirement savings options, harming self-employed in particular
- Existing Lifetime ISA could quickly be reformed to provide greater support to first-time buyers
- As a minimum government must prevent consumer harm by allowing Lifetime ISA holders to switch to an alternative product
Plans for a new First Time Buyer ISA offer zero consumer benefit in comparison to the Lifetime ISA and contain no measures to prevent harm to existing Lifetime ISA holders, leading investment platform AJ Bell argues.
Responding to HM Treasury’s First Time Buyer ISA consultation, AJ Bell argues government should instead commit to improving the existing Lifetime ISA.
If it pursues plans to replace the Lifetime ISA with a First Time Buyer ISA, government must prevent consumer harm by permitting existing holders to switch to an alternative ISA product or a pension depending on their needs.
Lifetime ISAs offer an upfront bonus to first-time buyers when they pay into their account, ensuring savers are guaranteed the government bonus and benefit from investment growth and interest on both personal contribution and the bonus.
A First Time Buyer ISA paying a bonus on exchange means no investment growth and/or interest is earned on the bonus. Savers will also be subject to uncertainty, relying on future governments to uphold the bonus amount.
The transition will also dramatically reduce retirement savings options for consumers. This is particularly likely to harm self-employed workers, already identified as a group with inadequate retirement provision.
AJ Bell recommends government discontinue plans for a First Time Buyer ISA and instead focus on implementing simple changes which would improve the existing Lifetime ISA for consumers.
Removing the exit penalty on ‘unauthorised’ withdrawals and raising the property price limit would make the existing Lifetime ISA more attractive and could be implemented quickly without the lengthy process involved in developing an entirely new ISA product.
AJ Bell chief product officer, Charlie Musson, says:
“There is zero evidence replacing the Lifetime ISA with a First Time Buyer ISA will benefit consumers.
“The smoke and mirrors approach is designed to appear to support savers, with a focus on first-time buyers. The truth is it will likely dilute the government support on offer, returning to a product similar to the now defunct Help to Buy ISA.
“If government were serious about offering more help for first-time buyers it would instead look at some of the flaws in the existing Lifetime ISA and get on with fixing them. Instead, like a shady plumber, government is trying to sell an unnecessary refit instead of fixing the obvious leak.
“To make matters worse, savers already using Lifetime ISAs will be collateral damage, left stranded in a legacy product unless government takes steps to allow them to move. As an absolute minimum government should permit people to switch to either a pension or an alternative ISA product, avoiding the creation of yet another legacy savings product in the UK.”