George Osborne has announced a new Individualised Saving Account, or ISA, for those looking to buy a home or save for their pension.
Osborne said the “Lifetime ISA” will launch in 2017, with savers receiving a 25 per cent bonus from the Government on deposits of up to £4,000 a year.
Savers are allowed to withdraw from this ISA at any time and they will not pay any tax on the money saved.
But if they want to use the money to buy a house, they would have to wait a year to withdraw it, while those saving for pensions will have to wait until the age of 60 to see the benefits.
Savers on the Help to Buy Isa are able to move their savings on to the Lifetime Isa. The Help to Buy Isa will be closed in November 2019.
Nigel Aston, head of European defined contribution at State Street Global Advisors, has said that the new Isa is not expected to have a great impact on the overall level of savings.
“We continue to believe that the most effective way of encouraging retirement saving will be low cost, well governed workplace pension schemes, with automatic enrollment and good quality default funds,” Aston said.
Others said that the Lifetime Isa does nothing to address the root causes of low savings rates: low wages and high debt.
Asesh Sarkar, CEO and co-founder of SalaryFinance, said the lifetime Isa is a step in the right direction, but it does not necessarily solve one of the major causes of low savings.
"For many low-income earners, their level of debt still makes saving an unachievable prospect,” he said.
HM Treasury has created a fact sheet to explain the scheme.