MPs call for Lifetime ISA and LTA to be scrapped

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26 Jul, 2018

MPs call for Lifetime ISA and LTA to be scrapped
 
The UK’s Treasury Select Committee is now pushing for the Lifetime ISA to be abandoned.
 
The influential group of politicians called for an end to the relatively new saving vehicle in a paper on household finances. The document also called for the lifetime allowance to be axed.
 
The report reads: “This inquiry has received strong criticism of the Lifetime ISA over its complexity, its perverse incentives, its lack of complementarity with the pensions saving landscape and its apparent lack of popularity with the industry and pension savers…The government should abolish it.”
 
Launched in 2017, the lifetime ISA offers people under the age of 40 an annual 25 per cent government bonus on contributions up to £4,000 if the funds are used to buy a property or to use for retirement planning – if money is taken out beforehand, a 25 per cent tax levy is imposed.
 
Furthermore, the Select Committee slammed how the government presents the 25 per cent tax charge on its website about the product.
 
In addition to this area, the MPs’ report found the present pensions tax relief system is not working effectively and should be revised
 
The document urged the government to scrap the lifetime allowance (currently £1.03 million) and replace it with a lower annual allowance.
 
The paper said: “There is widespread acknowledgement that tax relief is not an effective or well-targeted way of incentivising saving into pensions. Ultimately, the government may want to return to the question of whether there should be fundamental reform.
 
“However, the existing state of affairs could be improved through further, incremental changes. In particular, the government should give serious consideration to replacing the lifetime allowance with a lower annual allowance, introducing a flat rate of relief, and promoting understanding of tax relief as a bonus or additional contribution.”
 
Previously, deVere Group’s founder and CEO, Nigel Green, has been a vocal critic of the continual lowering of the LTA.  He has said: “This is a disincentive to save as much as possible for retirement and, therefore, it could be harmful to Britain's long-term economic success.

“With the burgeoning pensions crisis and the looming care crisis, among many other factors, we need to urgently revitalise, promote and nurture a savings culture in the UK as a matter of priority. Continually cutting the LTA goes against this concept.”

He added: “This move is a slap in the face for those who have worked hard and saved hard, prudently putting money aside all their lives, in order to be able to enjoy their desired retirement. It is a nothing short of a dangerous cap on aspiration.”