Anyone who opens a Lifetime ISA after the new savings scheme launches next month will be given additional warnings about the potential pitfalls at the point of sale, the Financial Conduct Authority said today.
The regulator's announcement follows lobbying from MoneySavingExpert.com for greater protection for savers, with MSE founder Martin Lewis warning MPs in October that without clearer guidance some could end up "mis-prioritising their finances".
The Lifetime ISA (also known as a 'LISA') launches next month on 6 April and those who are aged under 40 on this date will be eligible to open one. It will allow you to save up to £4,000 a year, with a 25% state bonus paid either on completion of a property purchase up to £450,000 or when the account holder turns 60.
The new warnings which the FCA said today it would add at the point of sale - and which we called for - include:
- Information on the risk of saving into a LISA as opposed to an employer-based pension, which would offer tax-free matched contributions.
- Info on the risk of the LISA potentially affecting your right to claim means-tested benefits in future.
However the FCA chose not to respond to MoneySavingExpert's call for clearer info for those transferring their Help to Buy savings into a LISA.
In order to buy a home, a LISA must first be open for 12 months - so those wishing to purchase within a shorter timeframe would only benefit from a state bonus via a Help to Buy ISA. The FCA stated that to add such a warning was 'beyond the scope' of its consultation.
For full info on how Lifetime ISAs work and the pros and cons see our Lifetime ISAs guide.
'Very important the Government has taken this on board'
MoneySavingExpert has been campaigning on making Lifetime ISA warnings clearer prior to today's announcement.
In October Martin gave evidence in Parliament on the Savings (Government Contributions) Bill and warned MPs: "There are certain dangers of mis-prioritising your finances. With the Lifetime ISA it's wrongly opting out of auto-enrolment pensions and putting your money into a Lifetime ISA instead."
A MoneySavingExpert submission to the FCA's consultation on Lifetime ISAs also called for greater warnings to be added.
Commenting on today's FCA announcement, Martin said: "It's very important that the regulator has taken this warning on board.
"What really counts is how this warning is given to consumers - but it's a step in the right direction."