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Lifetime ISAs - FCA consultation for handbook changes

6th Dec 2016

FCA consultation paper is here

 

In November the FCA issued CP16/32 setting out their proposed handbook changes to reflect the introduction of LISA from April 2017.  As background the following may be useful:-

 

 

1. Adults under age 40 can start a LISA and pay in up to £4,000 per annum (as part of their overall £20,000 total ISA allowance).

 

 

2. The treasury will add 25% to the amount invested.

 

 

3. The money can be withdrawn with no penalty:- 

 

To buy a first home worth up to £450,000 (following at least 12 months from first saving into the LISA).

In case of terminal illness.

After the age of 60.

 

 

4. Investors will lose 25% of any money they withdraw before age 60 for any other purpose (i.e. if put £4,000 in, government bonus £1,000 and withdrew immediately customer would only receive £3,750).

 

 

5. Customers can choose between a cash LISA and a stocks and shares LISA – as for regular ISAs.

 

 

 

Broadly, the FCA intend to follow their normal rules for ISAs but they are requiring specific warnings to be provided, as follows:-

 

- Incurring the early withdrawal charge means that investors may receive less from their LISA than they paid in.

- Potentially losing an employer contribution to a workplace pension if they open a LISA instead.

 

 

There is no requirement for individual illustrations.  However, the key features do need to include a generic example table showing various start ages for the LISA, annual investment contribution, total amount invested including government bonus, estimated outcome at age 60 from 0% return, estimated outcome at 60 at x% return, a figure showing the outcome after allowing for charges and estimated inflation as a reduction in yield.  (As a CTC comment, putting together the effect of charges and the inflation effect into one figure seems somewhat surprising.  Some clarification is needed in this area.)  

 

 

The FCA have also set out proposals with regard to cancellation rights which must be clearly set out.

 

This is currently a consultation document which closes in January 2017.  There is not very long until the launch date of 6th April 2017.

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