Why all women aged 18-39 should consider opening a Lifetime ISA

Written by James Hetherington

Interested in putting some money into a new ISA but not sure which one to choose? Here’s why you should consider opening a Lifetime ISA before the end of the 2021-2022 tax year (April 5th), if you haven’t already.

What is a Lifetime ISA?

A LISA isn’t something you pay into for a ‘lifetime’, but you can use the savings to help fund two important life goals:

1. You first home

2. Your retirement

Here’s the fun bit!

1. For every £100 you put in a LISA, you'll get £25 (a 25% bonus) from the Government.

2. The maximum amount you can put in a LISA each year is £4,000, so up to £1,000 of free Government money is up for grabs each year.

3. That’s up to £32,000 of free money in total.

But here’s the sad bit: you can only open a Lifetime ISA (LISA) if you’re aged between 18 and 39.

But all is not lost! Because if you've reached the big 40 and you're looking to boost your retirement savings, you could set up a Self-Invested Personal Pension (SIPP) if you haven't already. You'll get £20 for every £80 you put in, and an extra £20 per £80 if you're a higher-rate taxpayer.

But why should you open a LISA before the end of this tax year?

• If you haven’t used up your tax-free allowance this tax year, now’s the time to do it.

• Your tax-free allowance is reset on April 6th, which is the start of the 2022-2023 tax year.

• You’ll receive the 25% bonus a year later.

You can use your LISA savings to help pay for a mortgage deposit

We know many people find it hard to save up for a mortgage these days, even with schemes like Help to Buy. Inflation is rearing its ugly head once again, energy costs are soaring, and to throw another spanner in the works, the Government recently announced it would reduce the student loan repayment threshold to £25,000.

But if you’re planning on buying your first home in the next 5 years and are able to put in the full £4,000 each year, you could build a savings pot worth £25,000 in five years (for a Cash Lifetime ISA). Bear in mind that your LISA needs to be open for at least year before you can withdraw the money for this purpose.

Is it worth getting a LISA if I already have a mortgage?

Yes, because if you're lucky enough to be under 40, you can still open a LISA to boost your pension pot (and you can put money into a SIPP as well). The State Pension age is creeping up all the time – yet the £ you get remains stubbornly poor. In the 2022-2023 tax year, the full State Pension is only £185.15 per week, while the basic version languishes at just £141.85 per week.

While you can’t keep putting money into a LISA or receive the Government bonus after you turn 50, you can transfer it to a SIPP to continue funding your retirement. Normally, you can start withdrawing your SIPP savings once you reach 55.

You can also put your LISA savings towards your mortgage AND your pension

You don’t have to pick just one option. You can withdraw some of your LISA savings to help fund the cost of buying your first home, then leave the rest for your pension later on.

What if I’m nearly 40 already? Is there any point in opening a LISA?

If you think there’s no point in opening a LISA because you’re about to turn 40, think again! Remember: you can still pay into it until you're 50.

So, even if you hit the big 40 a few days after the end of the 2021-2022 tax year, if you open a LISA now and put away £4,000 each year until the day before you turn 50, you would still get £10,000 of free money on top of the £40,000 you would put in during that 10-year period.

If you’re still not convinced that you should open a LISA:

Bear these points in mind:

It’s extremely unlikely that you’d lose money with a Lifetime ISA

• You can stick to a Cash Lifetime ISA if you prefer to avoid the ups and downs of the stock market.

• Because of the 25% bonus, it’s pretty much impossible to lose money on a Cash Lifetime ISA.

If you’re happy taking on a little more risk, consider a Lifetime Stocks and Shares ISA

• However, even with a Stocks and Shares Lifetime ISA, markets would have to have an incredibly bad year for you to lose money.

• Did you know that the stock markets have outperformed cash 9 out of 10 times for every 10-year period?

You can still open and put money into one of each type of ISA in the same tax year:

So, during the 2021-2022 tax year, which ends on April 5th , you can open and put money into:

• A Cash Lifetime ISA or a Stocks and Shares ISA.

• A Stocks and Shares Lifetime ISA or a Cash ISA.

• A Junior ISA (JISA), if you are saving for a child.

• An Innovative Finance ISA, although these are rare.

But you can’t open or put money into:

• A Lifetime Stocks and Shares ISA and a regular Stocks and Shares ISA

• Or a Lifetime Cash ISA and a regular Cash ISA)

Next steps

Our guide to LISAsOur guide to LISAs

What are the best LISAs?What are the best LISAs?

Compare LISAsCompare LISAs

Move your LISA to a pensionMove your LISA to a pension

FAQs

Click on the links below to see the answer to each question or a similar question:

Can I still open a LISA if I'm getting a mortgage with someone who isn't a first-time buyer?

Should I recommend a LISA to my children?

Can I still use my other savings to pay towards a mortgage deposit even if I have a LISA?

Have a question? Ask an adviser now.