Lifetime ISA To Save For Homes And Pensions

Plans to help young people save for a first home and their retirement at the same time have been unveiled in the Budget.

George Osborne announced the new Lifetime ISA for those aged between 18 and 40 to allow long-term saving with flexibility.

Addressing Parliament he said: "For those under 40, many of whom haven't had such a good deal from the pension system, I am introducing a completely new flexible way for the next generation to save.

"It (Other OTC: ITGL - news) 's called the Lifetime ISA. Young people can put money in, get a Government bonus, and use it either to buy their first home or save for their retirement."

From April 2017, people will be able to save up to £4,000 a year and the Government will provide a 25% bonus on these contributions at the end of the tax year.

People who save the maximum each year, will receive an annual £1,000 bonus.

Over a lifetime, savers who manage to put away £128,000, will receive a maximum bonus of £32,000.

Former Liberal Democrat pensions minister Steve Webb, who is now director of policy at Royal London, sounded a note of caution about the plans.

"Young savers who opt out of pensions in favour of a lifetime ISA lose the contribution from their employer and the chance to build a tax-free lump sum from a pension pot - how will they know which is right for them?" he said.

Those who open a Lifetime ISA will be able to use some or all of the money to buy their first home, or keep it until their 60th birthday.

Accounts are limited to one per person, rather than one per home, so two first-time buyers can both receive a bonus when buying their first home together.

Individuals will be able to transfer savings from other ISAs as a way of funding their Lifetime ISA, but any contributions will have to sit within the overall £20,000 ISA limit, which will become effective as of 2017.

If you decide to use the Lifetime ISA to save for your retirement, you will be able to take out all the savings tax-free after your 60th birthday.

However if you decide to withdraw money at any time before you turn 60, you will lose the bonus, and any interest on this, and will have to pay a 5% charge.