Chancellor George Osborne has today announced a new lifetime Isa in his Budget speech to help under 40s who feel they have to make a choice between saving for a retirement or saving for a property.
Similar to the help-to-buy Isa, government will boost the savers' pot, with the rate offered on the lifetime Isa being £1 to every £4 a saver sets aside up to a limit of £4,000 worth of savings per year.
However, unlike the help-to-buy Isa, young savers can either put the money towards their first home or keep hold of it until they are 60, when they can withdraw it tax free. Savers can also withdraw their money from their lifetime Isa early but they will incur a five per cent charge if they do.
The lifetime Isa can be opened by those aged between 18 and 40 from April 2017 and government will add to any savings put in before the account holder's 50th birthday.
Those who already hold a help-to-buy Isa can also roll their savings into the new Isa format, the chancellor said.
Commenting on the announcement, Phil Wadsworth, chief actuary at JLT Employee Benefits, remarked: "Getting one pound for every four is a straightforward incentive to save. Coincidentally, it is the equivalent of pension tax relief for a basic rate tax payer. The fact that lifetime Isas are much more flexible means younger people will likely find it more attractive than pension savings."
However, the Association of Taxation Technicians (ATT) expressed its disappointment with the age limit slapped on the new savings incentive.
"We believe that it would make sense to widen the eligibility of the lifetime Isa to people over 40 years old considering they have endured many of the same problems that have led to low pension savings, chiefly the rising cost of living in the UK, as people in their late 30s," said Ralph Pettengell, deputy president of the ATT. "To not extend it to the over 40s is strange and unfair."
Osborne also raised the general Isa limit from £15,240 a year to £20,000 a year from next year.
Shares in Hargreaves Lansdown rocketed on the announcement.
Osborne had previously backed away from revealing drastic retirement savings reforms, despite initially announcing that he would be discussing the outcome of a Treasury consultation on the subject in the Autumn Statement in November.