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Weekend reading: Death to the Lifetime ISA?

Weekend reading: Death to the Lifetime ISA? post image

What caught my eye this week.

I would love to start here with an analogy drawn from the film Synecdoche, New York. But I fear I’m quite possibly the only person on Earth to have ever seen it.

Allegedly others have. Reviews exist on the Internet. Some rightly hail Synecdoche a work of genius. A few fools label it pretentious twaddle. But I’ve never met these critics – I even saw the film in what seemed to be an empty cinema – so I can’t rule out those reviews coming from some weirdly highbrow Russian bot farm.

Anyway, Synecdoche, New York contains multitudes, but the bit I would like to be alluding to – which I’m going to explain in words instead, which is obviously ideal in an analogy – involves the lead character’s attempt to film a story drawn from his own life by rebuilding his life – and his house, and the surrounding city – inside an enormous film set.

Which is how I found myself proceeding when I tried to write about the Lifetime ISA.

You think I’m joking?

I’m not!

Lifetime sentence

I published a piece explaining how the Lifetime ISA worked in April 2017. This long post was what remained after I hacked out a big rant about the silliness of the product – and another multi-thousand word discussion about who should make use of one.

Instead, I just gave some vague pointers, then concluded:

In the next post we’ll see exactly who the Lifetime ISA might be good for, and who should say “no thanks”, and back away slowly.

And to this day I have never finished that follow-up.

My draft is huge, contains multitudes, and is unfinished. The knowledge of it sitting there has often given me writer’s block and stalled other articles. The thought of comment after comment pointing out this or that issue if I did publish it without chasing down every last use case makes me freeze up. Instead I kick it down the road for another week or six.

Even unfinished the article wanders widely into all kinds of areas of investing – risk, time horizons, shares versus property, taxes, early retirement versus traditional pension saving, employer pension contributions – because the Lifetime ISA forces all this onto the table.

That might sound like a good read, but it is very sub-optimal. We already have a couple of million words across more than a thousand Monevator articles trying to cover all that, and there are still holes. This Lifetime ISA draft article manages to be both insanely verbose and yet still not sufficiently comprehensive to ensure nobody is misled.

Now you might be thinking:

“Okay TI, I get that the Lifetime ISA is a bit convoluted with the pension and house buying bung combo rolled into one wrapper, but I managed to figure out that I should / should not use one.”

I believe you! It’s just about possible to figure out whether an individual should open a Lifetime ISA, if you’re there with the individual.1 After two or three hour-long conversations for example I got there with my ex.2

But you really do need everything on the table to make this decision, in a way that’s not true of any other financial product I can think of. Which means that while it might have been straightforward-ish for you to decide what you should do, generalizing advice for even broad groups is very difficult.

Seriously, the Lifetime ISA is like some kind of beneficial yet malevolent magical goblet in a Greek legend. One minute it’s refilling itself with ambrosia. The next minute it’s chomped your arm off.

I believe this complexity is why even today only around half a dozen financial service providers are offering Lifetime ISAs (and only a couple the cash version). The others may fear a mis-selling scandal. Or, like me, they were hoping it would be killed off sooner rather than later.

Which brings me finally to this exciting news from Treasury Select Committee3 as reported by ThisIsMoney:

The Treasury Committee has today called for [Lifetime ISAs] to be scrapped due to their ‘perverse incentives and complexity.’

My heart just skipped a beat.

To throw out a spoiler for a film you’ll never watch, Synecdoche, New York ends on a gloomy note. The director’s project proves fatal. Don’t fire this one up for Netflix and chilling.

But could my own half-finished epic have a happier ending?

MPs might throw me a lifeline – if they can stop bickering for five minutes about when to start stockpiling prosecco – and give the Lifetime ISA the unceremonious death it deserves.

From Monevator

Our updated guide to help you find the cheapest broker for you – Monevator

From the archive-ator: Wealth preservation strategies of the rich – Monevator


Note: Some links are Google search results – in PC/desktop view you can click to read the piece without being a paid subscriber. Try privacy/incognito mode to avoid cookies. Consider subscribing if you read them a lot!4

Household debt ‘worse than at any time on record’, reports ONS – Guardian

Trump just called off his trade war with EU. Score one for the globalists – Slate

F.I.R.V.L.? 75-year old investing legend doesn’t want to spend “the rest of my life” chasing the S&P 500 – Bloomberg

UK pensioners’ income growth outstrips wage rises, figures suggest – Guardian

MPs call for huge pensions overhaul [Search result]FT

Warnings growing ‘down valuations’ may be a red flag for house prices – ThisIsMoney

Leasehold prisoners press government for release [Search result]FT

Products and services

Clydesdale offering some first-time buyers loans of 5.5-times income, with just a 5% deposit – Guardian

Banks could be forced to set a minimum interest rate on savings accounts – BBC

FCA proposes changes to rules for crowdfunding platforms – FCA

Thousands of expat Barclaycard customers to have their accounts closed – ThisIsMoney

Got £1,000 spare? Ratesetter will pay you £100 [and me a cash bonus] if you invest it with them for a year – Ratesetter

The cheapest way to watch the Premier League football – ThisIsMoney

Lloyds Bank tells student using his ‘free’ overdraft for three months would cost him £1.3 BILLION – ThisIsMoney

Comment and opinion

Profiting from investment regret – Morningstar

The $20 swim – Mr Money Mustache

When bond yields throw you a curve [Canadian data but relevant]Canadian Couch Potato

The robo-advisers aiming to help you budget for a mid-life sabbatical – Bloomberg

There’s no such thing as mosquito week – A Wealth of Common Sense

The right place at the right time – Of Dollars and Data

Passive investing is improving governance and profitability, studies show – T.E.B.I.

Three keys to retirement happiness – Vanguard Blog

How to invest a windfall [Some US-specific advice, but relevant]Portfolio Charts

Modelling what happened if you retired just before the last big crash – Retirement Investing Today

Bethany McLean: Business gone bad and the art of persistence [Podcast]Invest Like The Best

Swedroe: The size factor was not dead – sometimes you have to grin and bear it! – ETF.com

Are Smart Beta funds premised on faulty beliefs about investing ‘rules’? – Abnormal Returns

Five ways to measure your active investing performance – UK Value Investor

Investing biases are not natural laws. We are not all the same – Behavioral Scientist

Kindle book bargains

Einstein: His Life and Universe by Walter Isaacson – £0.99 on Kindle

Alan Sugar: What you see is what you get by Alan Sugar – £0.99 on Kindle

The Honourable Company: History of the English East India Company by John Keay – £1.99 on Kindle


Barnier rules out key UK customs proposal – BBC

The idea we can hoard food for Brexit is just another fantasy – Guardian

British food stores ridicule Brexit stock piling plan [Search result]FT and [snarkier] FT

The dire consequences of a No Deal Brexit [Search result]FT

A humiliating Brexit deal risks a descent into Weimar Britain – Guardian

It’s getting hot in here…

Why is it so hot? [Video]Guardian

Productivity plunges when temperatures soar – NPR

How does the 2018 heatwave compare to that of 1976? – BBC

Preliminary findings point to a climate change contribution, say scientists – Guardian

The science of why heatwaves are so dangerous to human health – Wired

Off our beat

Britain’s largest gold nugget found on Scottish riverbed – Guardian

Mesut Özil on the conflicts he’s endured in representing his country at football – Twitter

We Rate Dogs‘ reconciliation: Peace can break out on the Internet! – Vox

Ban fat-shaming show Insatiable, its critics cry. But none of them have seen it – Guardian

And finally…

“You can no more learn to invest through reading a book than you can read a book about heart surgery and perform a triple bypass.”
– Michael Batnick, Big Mistakes: The Best Investors and Their Worst Investments

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  1. More precisely, whether they should USE one. I’ve said anyone under the 40-year old age limit should open one with £50, simply to ensure they have the future optionality. []
  2. Yes, I’m a thrill a minute of a boyfriend. Perhaps that’s why I am now an ex… []
  3. Yes, I said ‘exciting’. Again, form a queue ladies. []
  4. Note some articles can only be accessed through the search results if you’re using PC/desktop view (from mobile/tablet view they bring up the firewall/subscription page). To circumvent, switch your mobile browser to use the desktop view. On Chrome for Android: press the menu button followed by “Request Desktop Site”. []

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{ 58 comments… add one }
  • 51 John B July 30, 2018, 11:14 pm

    LISAs also benefit those out of work who could only put £2880 into a pension and get it boosted to £3600, but has it taxed at 15% on withdrawal.

    The LTA is much hated, and I’d support its removal. A lifetime government contribution limit could replace it, but I doubt the record-keeping is in place to do it retrospectively, and I expect all fear the complications of running a 2 tier scheme forward for decades.

    I think tax relief at marginal rate is not fair, I’d have a flat rate at 30%, but cap the government contribution at £10k a year, with 3 year rollover.

  • 52 Vanguardfan July 31, 2018, 7:10 am

    @hoelin my bucket – I think it’s highly unlikely that an employer offering minimum auto-enrolment contributions will instead pay that contribution in salary to an employee who has opted out.

  • 53 Alan July 31, 2018, 5:16 pm


    I’m confused sorry. How does a pay rise of £2.5k in a 1/80ths scheme exceed the AA?

  • 54 theFIREstarter July 31, 2018, 5:58 pm

    Pfff 2000+ word draft. I recently wrote nearly 6000 words on how to bet on horse racing 🙂
    Funny thing is seems like a fair amount of people read it!

    Seriously though I will probably open a Lisa just to have to option of using it, as I’m 3 years and counting (down) to 40.

    Buzzing to watch Synedoche, thanks for the Recc!

  • 55 Doc July 31, 2018, 6:19 pm

    @Alan apologies, quite correct, that was off the top of my head – it’s actually a bit higher than that. All depends on length of service and obviously worsened if you have purchased added years (as you accrue slightly more than 1/80th service for the year) – however under £4k of pay rise can definitely be enough to do it though, which is still a pretty small number.

    For example…
    Beginning PIP 37 years service, £70k salary, inflation 2%
    37/80ths x £70,000 = £32,375. Uprate for inflation = £33,023
    Lump sum 3x £33,023 = £99,069

    End of PIP 38 years service, £74k salary, inflation 2%
    38/80ths x £74,000 = £35,150
    Lump sum 3x £35,150 = £105,450

    Difference in final salary x valuation factor = £2,127 x 16 = £34,032
    Difference in lump sum = £6,381
    AA total = £40,413

  • 56 Alan August 1, 2018, 8:39 am

    Thanks @Doc.

    I’m in the public sector as well, and a 5.7% pay rise, as per you example, would be nice but isn’t going to happen where I work.

  • 57 Doc August 1, 2018, 9:04 am

    No chance of that for us either when it comes to pay rise – 0.75% was out latest one – however if you combine with a promotion or incremental rise then you could definitely go above it. Nurses too – recent AfC pay rise backdated plus increment could easily do it.

  • 58 Sam Rapley August 8, 2018, 11:28 am

    For me, the LISA was a no brainer. I am very fortunate in that my parents offered to match my contributions (I’m twenty y/o), therefore effectively guaranteeing a 150% ROI.

    However, I must agree with YoungFIGuy regarding the complexity around using the LISA to purchase a property. Even as someone who is fairly interested in finance and has just completed their DipFA, I’m not too sure what the qualifying rules amount to.

    I hope that if it is scrapped that they at least offer us holders the chance to transfer our LISA funds (bonus n’all) into their standard ISAs. Anything else would be very unfair, imo.

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