Steer clear of Isa flop

THE Government’s flagship deal to help the under-40s get on the housing ladder and save for retirement is a total flop.

Two months after the so-called Lifetime Isa was supposed to go on sale, the first cash account was finally unveiled yesterday by Skipton Building Society.

It wasn’t worth the wait. Skipton’s ‘Lisa’ deal will pay a measly interest rate of just 0.5 pc.

What’s the point when young savers can earn 5 pc from banks such as HSBC as current account customers?

You might argue that the Government’s 25 pc top-up is worth it, no matter how miserable the interest. The £1,000 on offer for saving the maximum £4,000 a year is free money, isn’t it?

Well, no — not when you factor in the nasty catches that stop you getting that cash.

The bonuses are paid until you reach the age of 50, but if you want to use the money for anything other than a house purchase, you will have to wait until you’re 60 to make withdrawals. otherwise, you’re hit by a stinging penalty that wipes out every penny of the bonuses, plus a chunk of your own savings.

Young people saving for the longterm would be better off sticking with pensions. First, you get the exact same government boost if you’re a basic-rate taxpayer (20 pc tax relief means it costs you £4,000 to put £5,000 into savings).

Then, if successful workers become higher-rate taxpayers, it costs just £3,000 to put £5,000 into a pension — a much better deal.

Second, with a pension you can get the money out, in full, at age 55, rather than 60. The drawback is that only a quarter of that will be tax-free. By comparison, no tax is charged on Lisa withdrawals.

All in all, young workers would be mad to dump pensions for Lisas for retirement savings.

The only other reason for opening a Lisa is to save for a house deposit. But even if someone saved the maximum, it’d take four years to build up a £20,000 deposit and the Government would only have contributed £4,000.

That’s not to be sniffed at, granted, but let’s not pretend it’ll stop children and grandchildren turning to parents and grandparents for help (see pages 40 and 45). our next government must urgently tackle the housing and retirement crisis facing the next generation . . . or the Bank of Mum and Dad could quite quickly run out of cash.

Annuity rules

In LAST Wednesday’s paper, you may have read about Phoenix Life’s 2013 scheme to let savers cash in annuities worth £2,000.

We wrote that the small pot rules the firm used now let you cash in up to £10,000 — but only if your insurer permits.

A number have launched reviews into whether to allow this. Some of you wanted to know more about the £10,000 figure.

Did it represent the amount you invested in the annuity originally or what you were getting back?

The answer is it’s the value of your annuity now that counts. In other words, you could have bought the annuity for tens of thousands years ago and still be able to cash in if the pot’s value has sunk below £10,000.

Millions of savers could benefit from these small pot rules. We just need insurers to give us the green light.

Credit to bank

MoneY MAIL spends a lot of time holding companies to account for poor service. nothing makes me more furious than hearing a firm has messed you around after a family member has died.

But we also dish out praise where it’s due — and natWest’s treatment of reader Frieda Lloyd after her husband died suddenly on holiday was spot on.

‘The staff at natWest could not have been kinder or more helpful,’ Frieda told me by email. ‘The manager even gave me his home telephone number, as he didn’t want me to want me to worry about finances while probate was going through. I’ll forever be grateful for their quiet kindness and help during a very difficult time.’

A little kindness goes a long way. So well done, natWest, for realising most customers only really ask that banks treat them as humans, rather than numbers on a screen.