The U.K. government will consult on whether a new initiative — a “Lifetime ISA” — should be akin to the U.S.’s 401(k) plans, said George Osborne, chancellor of the exchequer.
Delivering his 2016 “budget for the next generation,” on Wednesday, Mr. Osborne announced that the government will introduce a lifetime individual savings allowance product — “a new flexible way for the next generation to save.”
Starting in April 2017, those under the age of 40 may open a government-run Lifetime ISA, saving up to £4,000 ($5,689) of taxed income per year into the new product. In addition, for every £4 saved, the government will contribute a £1 “bonus” to the Lifetime ISA, every year until the person reaches the age of 50.
Savers may access their money at any time before the age of 60, but without the bonus, and also incurring “a small charge” of 5%. The government’s consultation will consider whether — like the 401(k) system — savers should be able to return money to the account to reclaim this bonus, “so it is both generous and completely flexible,” Mr. Osborne said.
He said the government’s retirement reforms “have always been about giving people more freedom and more choice,” and so, given the fact that young people are not saving enough, Mr. Osborne announced the new initiative. Many of these people “haven’t had such a good deal from the pension system,” he said.
“The introduction of a Lifetime ISA is an interesting initiative to help younger people add to their pension and lifetime savings,” said Joanne Segars, CEO at the Pensions and Lifetime Savings Association, in a news release. “We look forward to working with the government to help make sure that the Lifetime ISA does help younger people build up their savings. An important part of this will be to make sure that savers’ interests are protected by ensuring that the regulation on charges and governance of the Lifetime ISA are comparable to those for pensions, which have been reviewed to make sure they offer savers good value.”
Ms. Segars added that the government should take the opportunity to agree to “a new consensus for pensions that focuses on the long term, builds confidence and gives both savers and employers clarity and stability.” She called on Mr. Osborne to create an independent retirement savings commission to tackle that challenge.