The government’s new Lifetime ISA has been labelled a “damp squib”, with only three providers offering the new investment vehicle on its launch.
Only Nutmeg, The Share Centre and Hargreaves Landsdown were ready to offer a Lifetime ISA at the launch on 6 April.
Lifetime ISAs are aimed at people looking to save a deposit for their first home or for retirement.
Hannah Maundrell, editor in chief money.co.uk, said: “So far we know of just three providers that have managed to launch in time for the 6 April kick off.
“Yet again the government has promised consumers the chance of a shiny new savings vehicle without consulting with the industry on how and when they can deliver it.
“It’s a bit of a damp squib.”
Nationwide confirmed last December that it will not be offering Lifetime ISAs.
Lloyds, Barclays and Santander all said that they would review the situation but do not have immediate plans to launch a Lifetime ISA.
HSBC said it was continuing to work through the details of the product, while RBS and NatWest said they would continue with the Help to Buy ISA.
However, Skipton is planning to release a Lifetime ISA in June.
Chris Hill, incoming chief executive officer at Hargreaves Lansdown, said: “We have a huge shortfall when it comes to saving and investing in this country, and the LISA will be a great way to encourage younger people to put money aside for their future.
“The Lifetime ISA uses two very big carrots to draw the younger generation into the savings habit, namely the opportunity to get on the housing ladder, and a generous government top up. We expect this to be a potent combination which will motivate a large number of individuals to engage with financial planning, many for the first time.”
The Lifetime ISA was introduced on 6 April and allows anyone younger than 40 to put away up to £4,000 a year until they are 50.
It can be used by first-time buyers to fund a deposit for a property or taken tax free at 60 and has a tempting 25% bonus.
So for every £4 people save, the government will give them back £1, a bonus of up to £1,000 a year.
Suzanne Briggs, director at Blick Rothenberg, said: “The Lifetime ISA may not be appropriate for everyone due to the exit penalties if money is withdrawn for any other reason other than those permitted. If you need access to the cash after April 2018, you will pay a 25% exit penalty.
“So for example, if you put in £4,000 and receive the 25% government bonus, your LISA is worth £5,000. You need the funds for a financial emergency so you withdraw the cash, but after the 25% exit penalty is applied, you only receive £3,750 back. Even if the value of the fund grows steadily at the rate of say 4%, the impact of the exit penalty could mean that you would get back less than the growth in value of the fund.
“Many banks are not willing to launch their own LISA onto the market just yet and so time will tell whether these will be as popular as the Help to Buy ISA. Hopefully, in the meantime, there will be a rethink as to the financial consequences of the exit penalties.”
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