Saving is at the heart of George Osborne’s Budget as he announces incentives for younger people to put money aside for their retirement or to get on the property ladder.
Adults under the age of 40 will be able to get a 25% yearly bonus from the Government and withdraw their money tax-free at age 60 via a new Lifetime ISA introduced by the Chancellor.
The Government will give each saver £1 for every £4 they put in the new ISA product. People can invest up to £4,000 each year to get the Government bonus, up until age 50.
The £4,000 contribution will sit within the overall ISA contribution limit, which from 6 April 2017 is being increased from £15,240 to £20,000.
Qualifying investments will be the same as for a Cash or Stocks & Shares ISA.
Launching on 6 April 2017, the Lifetime ISA aims to stop younger people having to make a choice between saving for retirement and saving for their first home.
The funds can be used to buy a first home worth up to £450,000 at any time from 12 months after opening the account.
The funds can be withdrawn from age 60 ‘for any other purpose’ and the withdrawal, including the bonus, will be paid free of tax.
The Government proposes that savers can make withdrawals at any time for other purposes, but the bonus plus interest or growth on it will be returned to the Government, with a 5% charge applied.
Gareth Shaw, head of consumer affairs at Saga Investment Services, said the announcement is a huge boost to tax-free savings which gives people flexibility to access their lifetime savings for whatever they want.
‘This is the kind of environment that will drive people to save more money,’ he adds.
Richard Parkin, head of pensions at Fidelity International, says: ‘We welcome any changes that encourage and incentive saving for the longer term – particularly those in the younger age group who are facing real struggles between saving for a pension and saving to get on the property ladder. The Lifetime ISA straddles that idea well and with flexibility on access, it will increase the appeal of longer term saving to younger generations.’