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Show LISA some love!

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Lifetime ISAs - £1,000 'free' cash every year to help fund a first home or save for retirement!

Most of us would jump at the chance of getting our hands on free, or easy, money, wouldn’t we? Especially when the effort from the customer is so small, and in return for a not-at-all-negligible £1,000? And yet, a recent survey we carried out[1] has found that while one in three millennials are saving for their first home, to get that first foot onto the elusive property ladder, 56% of aspiring homeowners are losing out on an annual £1,000 top-up bonus from the Government by not saving into a Lifetime ISA.

What is a Lifetime ISA?

The Lifetime ISA – or LISA - is open to anyone under the age of 40. The account lets you save up to £4,000 a year towards a first home or retirement, with the Government adding a 25% bonus on top of what you save, up to a maximum of £1,000 per year.[2] The funds can be withdrawn to purchase your first home up to the value of £450,000 or to go towards retirement, in which case the funds would be accessed from the age of 60.

But what does that mean for me?

This could amount to rather a lot for the under 40s. Our research also found out that, of those saving to buy their first home, only 13.18% of these are saving into a Lifetime ISA[3] while 30.91% are putting money into a Help to Buy ISA (the Lifetime ISA’s predecessor) – which means that there are a lot of aspiring homeowners currently missing out on the ‘free money’ (of up to £1,000 a year) offered with a Lifetime ISA.

Yet, the LISA is a no-brainer. With the 25% top-up, and interest rates at an all-time low, the product blows other options out of the water. Add to this an economy beset by Covid-19, and the UK’s stamp duty holiday set to finish in March 2021, and the market for first-time buyers is feeling even more strange and unstable than it was, even pre-2020.[4]

Why aren’t LISAs being used?

We have our own theories about why LISAs aren’t getting the love and attention they should, and one is the name. The ‘Lifetime ISA’ just doesn’t seem to chime with potential customers, or ‘do what it says on the tin,’ in the same way a ‘Help to Buy ISA’ did. Perhaps a less ambiguous name might help increase uptake, as well as better awareness and education about the savings products available so that those who might benefit from the LISA know what to look out for, and use.  

Can employers help employees get on the housing ladder?

Yes, they can. Employers can support their people by encouraging them to pay money into a LISA directly through their payroll each month. Employers can also choose to contribute too, splitting any pensions contributions over and above the minimum rate into a LISA account instead. This will appeal to younger workers who are prioritising buying their first home over saving for retirement, something that they might find easier to engage with. While pensions are important, many young employees have other financial priorities and concerns they might, quite reasonably, put ahead of saving for the longer term.

What next?

Workplace savings can help foster greater savings habits with employers offering employees the ability to put money aside direct from pay from just £10 a month. Couple this with better education around the savings products available and younger employees can be well on their way to saving for that first home and reaching their goals far quicker. After all, who’s going to say no to free money!

[1] Cushon research on financial security and its importance, survey amongst 2,000 employees – September 2020

[2] https://www.cushon.co.uk/blog/what-is-a-lifetime-isa

[3] Cushon research on financial security and its importance, survey amongst 2,000 employees – September 2020

[4] https://www.bloomberg.com/news/articles/2020-11-27/buying-property-in-the-uk-best-tips-for-potential-first-time-home-owners