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13th
Apr 2016
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Will the Lifetime ISA be vital for self-employed workers?

Will the Lifetime ISA be vital for self-employed workers?

Will the Lifetime ISA provide the key pensions saving tool for those who don't benefit from auto-enrolment and employer pension contributions?

Will the Lifetime ISA be vital for self-employed workers?

Announced by the Chancellor in the March 2016 Budget Report, the Lifetime ISA is a new savings tool designed to allow individuals to save simultaneously for their first home and their retirement. Aimed at everyone aged between 18 and 40 years old, it may however prove most popular among the self-employed.

While employed workers are now automatically enrolled into workplace pension schemes which also benefit from contributions from the employer, freelancers and the self-employed are largely left to fend for themselves when it comes to preparing for their retirement. While there are a range of personal private pension plans available to self-employed people they may prove unpopular among some workers who feel they need a more flexible way to save for retirement, in case they endure times of slow business or want to take money from their pension pot to expand their business, the Lifetime ISA then could prove crucial to the self-employed.

From the product launch next year, savers will be able to save up to £4,000 a year in a lifetime ISA. In addition to having the benefits of a regular Cash or Investment ISA, savers could receive a 25% boost from the government on top of their savings if withdrawn after the account holder's 60th birthday or when the money is used to purchase their first home.

The key factor that could give Lifetime ISAs the edge over other pension plans is that while private pension schemes do not permit savers to make withdrawals before they turn 55, with a Lifetime ISA savers will be able to make withdrawals from the account at any time they need access to their cash. They will however lose the bonus and incur a 5% charge on the amount withdrawn, which can be recontrbiuted later providing they do not exceed their annual ISA contribution limit.

This means a saver who waits until their 60th birthday could earn an extra £1 for every £4 they contributed before their 50th birthday (to a maximum of £32,000). In addition to the government bonus they will still benefit from any interest or investment growth that accumulated on the account and they can withdraw it all tax-free, unlike many pension schemes which only allow up to the first 25% to be taken out without tax.

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