8 June 2022
If you are covering HMRC’s annual savings statistics, please see the following comment from Shaun Moore, tax and financial planning expert at Quilter:
LISA withdrawal charges top £33m
New data from HMRC shows that savers once again paid millions in Lifetime Isa withdrawal charges in the 2021/22 tax year. Early withdrawal charges amounted to over £33m which is only just over a £1m less than 2020/21 when people were raiding accounts during the pandemic to keep afloat. The last two tax years saw charges more than triple compared to those levied in 2019/20.
In 2018/19 and 2019/20, the withdrawal charges were set at 25% before they were dropped to 20% from 6 March 2020 to 5 April 2021 to help people impacted by the pandemic to access funds. However, the 25% charge is now back in place.
These stark figures illustrate how many people were still struggling to pay bills last year and have decided to stomach the 25% charge just to get their money out. This also points to the LISA being an ultimately flawed product that needs a serious rethink. The covid crisis should have taught us that in times of financial hardship we should not be penalising people for using their savings to keep their heads above water. But with more people than ever struggling with their finances, we are back to penalising savers who simply can’t predict their financial future and now dealing with huge energy and food bills.
The LISA is meant to be a hybrid between a retirement savings vehicle and an ISA product for first time buyers, but you could argue it fails to do either job particularly well. Lifetime ISAs are neither an ISA, with the flexibility to withdraw money at any time, or a pension, which has generous tax relief on contributions but requires savers to lock-up their money to at least age 55. Similarly, first time buyers, particularly in the south, are now also dealing with huge house price increases which mean that their LISA product will not even be useful because people are having to purchase properties over the £450,000 limit.
This muddled product needs a serious rethink, and the government should carefully consider its place in the long-term future of the UK’s savings system or at the very least get rid of the 25% charge and increase the house price limit in response to prices rising over 74% in the last ten years according to today’s Halifax house price index.
Number of Cash ISA subscriptions plunges by 1.6 million
It is very encouraging to see that many savers have woken up to the benefits of investing. Cash ISAs have finally started to lose their grip on the savings market and the share of accounts subscribed to cash has fallen to 66% of accounts, compared to 75% in 2019 to 2020. Comparatively, the number subscribing to stocks and shares ISAs increased by around 860,000.
This increase may be even more pronounced next year as people grapple with today’s intense inflationary environment and seek potentially better returns. Even the very best interest rates on Cash ISAs at the moment will do nothing to stop the rotting effect of inflation on people’s savings which are losing value all the time.
The increase in stocks and shares ISAs may also be a product of many younger savers becoming more familiar with the concept of investing due to the rise in popularity of cryptocurrency and day trading. While this type of investing can be akin to gambling longer term investing can be much more beneficial. If looking to invest via a stocks and shares ISA it is wise to take a long-term view and only invest what you can afford to lose and construct a risk appropriate portfolio. However, over a longer period compound returns can deliver rewards for investors that commit to saving via this product.
For anyone considering investing in an Isa, there are lots of options available and it is well worth considering speaking to a financial adviser. They will assess your own personal financial needs and help to identify an investment plan that sets aside the right amount and allocates it to an investment that is suited to you.
