Significant number of savers open cash Lifetime ISAs

An estimated 28,000 individuals have taken out cash Lifetime ISAs with Skipton Building Society – the only provider currently offering a cash version of the product.

It revealed that the new cash Lifetime ISA is proving to be popular with younger savers in particular: 51% of accounts have been opened by individuals under the age of 30.

Introduced in April, the Lifetime ISA allows savers under the age of 40 to deposit up to £4,000 each tax year. They will then receive a 25% bonus from the government on any savings put into the account before their 50th birthday.

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The tax-free savings and the government bonus can be put towards a deposit for a first home in the UK, or can be withdrawn from the age of 60 for retirement purposes.

Skipton Building Society’s cash Lifetime ISA currently offers a rate of 0.5%.

Kris Brewster, Head of Products at the building society, said: ‘We believe the Lifetime ISA could make a real difference to a new generation of savers, not only in helping them get a foot on the property ladder but providing them with another option to help them save for their future too.’

Other providers offer stocks and shares versions of the Lifetime ISA. However, some have chosen not to offer the product due to its complicated rules.

Personal debt growth is ‘slowing’, BBA finds

Growth in personal debt slowed during May, data published by the British Bankers’ Association (BBA) has revealed.

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Personal debt grew by 5.1% during May, compared to 6.4% in April. Borrowing via loans and overdrafts slowed down in particular, the BBA said.

House purchase approvals also experienced a deceleration, totalling 40,347 in May. This number is 3.3% lower when compared to May 2016, and down on the monthly average of 41,923.

The BBA found that consumers are also saving less: in the year to the end of May, personal deposits grew at a rate of 2.6% – representing the slowest annual rate of growth in saving since 2011.

Commenting on the data, Eric Leenders, Managing Director for Retail Banking at the BBA, said: ‘In the run up to the General Election, credit growth in personal loans, cards and overdrafts has slowed, which was reflected in lower spending, with increased household costs affecting growth in deposits and saving.

‘Businesses appear to be weighing up their options before raising finance to fund projects or developments. After a long period of subdued company borrowing, overall growth is starting to stabilise at a modest rate.’

Significant number of workers ‘missing out’ on employer pension top-ups

An analysis carried out by insurer Royal London has revealed that more than three million people employed by large businesses are failing to claim around £2 billion a year in additional pension contributions from their employer.

Many UK workers pay a standard percentage of their wage into a pension, and their employer contributes as well. Some large firms also offer to ‘match’ additional employee pension savings when they save more.

However, Royal London has found that many workers are unaware of this, and have therefore not taken advantage.

It calculated that around £2 billion in employer pension contributions could be available to employees if they choose to save to a maximum as opposed to a minimum.

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Steve Webb, Director of Policy at Royal London, stated: ‘Millions of workers are missing out on ‘buy one, get one free’ money from their employer in the form of ‘matching’ pension contributions.

‘At a time when money is tight for many people and pay rises may be limited, getting your employer to contribute more to your pension can be a very cost-effective strategy.

‘When individuals are thinking about where to put their money to get the best return, the chance to more than double your money through an employer contribution and tax relief from the government takes a lot of beating.’

Report calls for retirement age to rise to ‘at least 70’

A report published by the World Economic Forum (WEF) has called for the retirement age in financially stable countries to rise to ‘at least 70’ by 2050, in line with increases in life expectancy.

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The report revealed that babies born in 2017 can expect to live to at least 100 years old. As a result, it suggested that individuals in nations such as the UK, US, Canada and Japan may have to work until at least age 70. The UK state pension age is already set to rise from age 65 in 2018 to 68 by 2046.

Policymakers have been urged to consider a handful of key strategies in order to help alleviate the situation. Governments should encourage individuals to save regularly within savings products, and should also review their national retirement age.

The WEF also called for education systems to teach financial literacy.

Michael Drexler, Head of Financial and Infrastructure Systems at the WEF, commented: ‘The anticipated increase in longevity and resulting ageing populations is the financial equivalent of climate change.

‘We must address it now or accept that its adverse consequences will haunt future generations, putting an impossible strain on our children and grandchildren.’

Savings gap between low and high income households widens, report reveals

A report published by insurance company Aviva has revealed that the savings gap between low and high income families in the UK has grown by 25% year on year.

According to Aviva’s latest Family Finances Report, families with low incomes have just £95 in savings and investments, whilst those with high incomes have an average of £62,885.

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25% of families in the UK are now classed as low income, whilst 8% are classed as high income.

The report also suggested that families’ savings have fallen to the lowest level in 18 months as a result of a decline in typical monthly incomes. Such incomes have fallen to £2,006 – representing a two-year low.

Paul Brencher, Managing Director of Individual Protection at Aviva, stated: ‘The gulf between low and high income families is showing signs of widening, in a worrying indication that those less fortunate are finding their finances increasingly stretched.

‘Without a financial back-up, any sudden unexpected expense could put low income families in particular under added pressure.’

Savers should be warned about Lifetime ISA risks, financial regulator suggests

The Financial Conduct Authority (FCA) has suggested that Lifetime ISA providers should warn savers of the potential risks associated with the new savings vehicle.

Announced in this year’s Budget, the Lifetime ISA will be available to savers from April 2017, and is designed to permit individuals under the age of 40 to save for a first home or to save towards their retirement.

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Savers who open a Lifetime ISA will be able to pay in up to £4,000 per tax year, receiving a 25% bonus from the government for every pound they put in. Individuals who save the maximum will receive a £1,000 bonus each year.

Under the FCA’s proposed rules, providers will be required to supply specific warnings to consumers at the point of sale, reminding them of the importance of having an appropriate mix of assets within their Lifetime ISA.

Alongside this, firms will need to remind savers of the early withdrawal charge and any other charges.

The financial regulator stated that it intends to ‘regulate the Lifetime ISA in the same way as other ISA products’, but will also create new protections designed to ‘reflect the dual purpose of a Lifetime ISA and the restrictions on accessing funds’.

The FCA will carry out a consultation on its proposals in an effort to implement the new rules before April 2017.

1% pension exit fee cap confirmed by FCA

Early exit charges for individuals withdrawing money from their pension pot will be capped at 1%, the Financial Conduct Authority (FCA) has confirmed.

For existing occupational pensions, the cap of 1% will apply, while a cap of 0% will apply to new contracts. The Department for Work and Pensions stated that the introduction of such caps will remove ‘unnecessary barriers for those wanting to access their savings’.

Both caps will only affect those aged 55 or over.

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Richard Harrington, Minister for Pensions, said: ‘This new cap will protect people’s savings from excessive charges, so more of their money will go towards the comfortable retirement they have saved for.’

Meanwhile, Christopher Woolard, Executive Director of Strategy and Competition at the FCA, commented: ‘People eligible for the Government’s pension reforms should feel able to access them as they wish.

‘The 1% cap on early exit charges for existing pensions and the 0% cap for new contracts will mean that current and future savers will not be deterred by these charges from accessing their pension pots.’

The new rules, which were proposed by the Treasury earlier this year, are set to come into force in March 2017.