Budget 2016: The lifetime Isa could be a real shot in the arm for savers and investors - but must not be bogged down in baggage like our pensions system

 
Danny Cox
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Money or house? The new lifetime Isa is designed so you don't have to choose (Source: Getty)

There is plenty to mull from today's Budget, but one announcement in particular stood out.

The saver's rabbit in the hat was the lifetime Isa, a scheme designed to help those under 40 get into the savings habit providing a bonus of up to £1,000 for every £4,000 saved per year, aimed at house purchase before age 50 or retirement from age 60.

Clearly tax incentives work - we have seen that with millions of pension savers.

However, this new lifetime Isa should capitalise on the simplicity and success of the Isa account, where the pension has suffered 30 years of rule change baggage and for many, has created mistrust in policymakers not to tinker in the future.

Today's announcement by George Osborne has the potential to revolutionise saving amongst those just moving into work and ultimately looks as though will overtake and perhaps merge with the help to buy Isa.

Currently around 80 per cent of Isa money is saved into cash Isa rather than stocks and shares Isa, so it's clear that those who take the lifetime Isa need to make good choices about risk and reward. Longer term investors who choose stocks and shares should be rewarded.

To succeed the new Isa will need a programme of education to run alongside and of course should not replace the need to build a rainy day fund and pay down debt. Furthermore it should not distract people from workplace pensions, where employer contributions are highly valuable.

But all in all, it seems a positive step for people trying to put by some money for their retirement.

The increase of the main Isa allowance to £20,000 from April 2017 and the reduction of capital gains tax to 20 per cent (or 10 per cent for basic rate payers) has reinforced the sense that in Osborne, we have a chancellor who is pro-savers and investors.

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