The Chancellor is launching a lifetime Isa for young people, which will allow those under 40 to contribute up to £4,000 a year and receive a £1,000 government match.
Billing the plan as an alternative to pension that would enable young adults to save for a home, Chancellor George Osborne said young people would be able to continue making annual contributions into the plan until age 50, and make withdrawals for property purchase. Money not used to buy property cannot be accessed until age 60.
Lifetime Isa accounts will be available from April 2017.
He said the government would consult on whether investors should be able to pay back in money that has been withdrawn and retain the government contribution, as is permitted in US 401k arrangements. Withdrawals would be allowed ‘for a small fee’ said Osborne.
Assets from the Lifetime Isa will be accessible for deposits for first properties up to £450,000. The matching contribution allowance is per person not per property, so two people can combine their pots for a single property purchase.
Help-to-buy assets can be moved across into the Lifetime Isa.
He also said the Isa limit would increase from £15,240 to £20,000 from April 2017.
The move could be interpreted as a first step towards a pension Isa model, a proposal that Osborne was believed to be planning to introduce but had shied away from because of fears of causing unpopularity ahead of the Brexit vote in June.
Osborne said: “The Lifetime Isa means people do not have to choose between saving for a home or for a pension. There is an equal incentive to the tax relief available on pension saving, and unlike pension, you do not get taxed in retirement. This is a Budget that puts the next generation first.”
- This story will be updated as more details emerge.