In his budget speech on 16th March 2016, Chancellor George Osborne announced a new ‘Lifetime' ISA.
The ISA is aimed at encouraging younger people to save for their future and can be used either in conjunction or instead of a regular pension scheme.
Under the plan, savers will be able to save up to £4,000 per year, that will then be topped up by the Government to the tune of 25%, making it the highest paying ISA available.
The Lifetime ISA is believed to be built upon the back of the popular Help to Buy ISA launched last year, and could be worth serious money to young savers. A 20 year old saving the maximum £4,000 per year, could receive up to £30,000 from the Government by the age of 50.
What you need to know
The new Lifetime ISA is set to be introduced in April 2017, and will be available to those between 18 and 40 years old.
All contributions into the Lifetime ISA will fall within the now current £20,000 limit. Transfers from previous ISAs will not count towards this limit.
Individuals will be able to contribute into the ISA and receive the Government bonus on their contributions until they reach 50 years of age.
The Government bonus will be paid into the ISA at the end of every tax year, allowing the saver to benefit from compound growth.
New to ISAs, the Government is currently investigating the possibility of savers being able to borrow from the ISA without penalty so long as those funds are repaid.
After your 60th birthday you can take out all the savings tax-free. This is significantly better than current pension arrangements and should act as an incentive for young people to save.
If you have a Help to Buy ISA, as well as a Lifetime ISA, you'll only be able to receive the bonus on one of the products. This won't be a problem in the future though as the Help to Buy ISA scheme will end anyway in November 2019.