15 Nov 2018

Is “LISA” about to “pass away”?

There has been recent talk about the success and future of the lifetime ISA (LISA). Comment has included former Minister for Pensions Ros Altmann saying that the LISA was a “fudge that was dreamed up in the last 10 days of the pension tax consultation” and that “it is very dangerous for pensions“.

Her fear is that the mixing of objectives, such as home purchase and retirement planning, in the same tax wrapper would dilute the understanding and importance of funding for retirement. And then the Treasury Select Committee has mentioned the abolition of the LISA in a paper on household finances saying that they had “received strong criticism of the LISA 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“.

However, the same committee also believe that the current system of tax relief on pensions is not an effective or well targeted way of incentivising saving into pension. They go on to recommend introducing a flat rate of relief and the promotion of the tax relief as a ‘bonus’

The ‘lack of popularity with the financial services industry’ is probably down to the technical challenge of the development of the new wrapper. More agile ISA managers were able to work with HMRC to ensure an ‘on target’ launch in April 2017 and to then continue to work with them to achieve the real time reporting requirements for April 2018. This required the development of an application programming interface (API) to enable data to be transmitted between providers and HMRC. This now appears to be working as intended; the 25% bonus is now claimed and paid monthly and all new applications and subscriptions can be submitted at the end of each day.

Following the successful development of the API for the LISA, it stands to reason that HMRC will want to use it for other tax wrappers as part of their drive to achieve fully digital tax reporting. Indeed, we have already seen this approach extended to pensions where an API can be used to identify clients who are subject to the Scottish rate of income tax, so it is unlikely that all the work undertaken to date will be shelved. While the LISA is often viewed as being linked with George Osborne and his ambitions, Philip Hammond did not cancel its launch in 2017 and so its future would seem more safeguarded than some might have wanted