Investing Insiders Weekly #8

Top Story

THE LIFETIME ISA MAY NOT LAST A LIFETIME…

The Lifetime ISA (aka LISA) could be under threat after MPs ruled it is too costly for taxpayers, is too complex in its current form and mostly benefits wealthier people.

 Basically, the issue is that the government gives savers a bonus on their savings into LISA, which it funds with money paid through taxes.

 But the report found most of the people getting the biggest savings were those with the most to save – meaning the people most in need of financial help weren’t reaping the full benefits.

There’s also the issue of charges. The LISA has a notoriously complex charging system, whereby you get a 25% bonus on your savings – woohoo! – but if you take any money out, you’re charged 25% on the whole lot, including the bonus.

Here’s a real example of that: If you pay in £4,000, you get a £1,000 top up. If you then withdraw the cash, you’ll be charged a 25% fine on the whole £5,000 – that’s £1,250. Ouch!

✔️The good news: This might not mean the downfall of the LISA… what it could mean is meaningful reform that would make it better value, and the messy withdrawal charge that has been widely criticised might finally be reformed.

❌The bad news: However… if MPs are saying the LISA is costly to the taxpayer, that could put it in the chancellor’s firing line. The government is desperately looking for ways to cut costs, so anything that has been ruled as poor value will be first to go.

💡The takeaway: Now is probably time to maximise your LISA if you have one. Keep an eye out for reforms in this space.

More from the regulator…

THINGS LOOK FRAUGHT FOR TARGETED SUPPORT… marketing rules might ruin plans

🤓In a nutshell: The UK regulator is trying to allow pension and investment firms to offer free guidance to customers, which is great news and long overdue – but there’s a bit of a snag.

Existing direct marketing rules could block firms from actually being able to reach out to customers.

How, you ask? Targeted support could potentially fall under direct marketing, because it requires encouraging customers to do something. Rules say firms can only breach direct marketing to send boring regulatory notices – they can’t suggest or incite action.

This means firms will not be able to contact potentially millions of customers to engage them with their pensions or investments without breaching other rules.

💡 The takeaway: The FCA is in talks with loads of other departments to try to find a compromise… but if that fails, targeted support could have far less of an impact than originally hoped.

If you’re hoping to get some extra support from your firm, consider opting back into receiving communications! 

Platform Watch 👀

Thinking of opening a Self Invested Personal Pension (SIPP), or are just thinking of shopping around for a better platform? Great

But if you’re thinking of holding any money in cash – for example, if you are approaching retirement or if you’re particularly risk-averse, make sure you check the interest rate your SIPP provider pays on your uninvested cash.

You could be missing out on a top rate.

Check out our top picks for SIPPs that pay interest on uninvested cash here.

And while we’re at it… make sure your SIPP is cost-effective, too.

If you have just £10,000 in your SIPP and plan to invest £500 this year, you could save almost £60 this year alone just by switching to a better platform.

Compared to the average UK investment platform, you would save £58.84 per year by switching to Prosper.

Over 20 years at 8% growth, this could result in £2,907.96 more in your portfolio, our calculator shows.

Check your own situation using our free calculator here.

Tip of the week

Did you know that you could claim up to £1,256 back from HMRC if you’re married?

A little-known allowance, the Marriage Allowance, allows people who are married or in a civil partnership and earn under the basic rate tax threshold to transfer £1,260 of their tax-free allowance to their partner, saving them up to £252 a year.

But, you can backdate your claim to April 2021.

All you need to do is search for the marriage allowance on gov.uk. It takes a few minutes to apply, and HMRC will send the money straight back to you.

One Minute Market Fix

Despite ongoing uncertainty around Trump’s tariffs and the conflict in the Middle East, stock markets rallied in the first half of this week. 

But indexes around the world tumbled on Wednesday. The UK’s FTSE dipped amid concerns about the state of the country’s finances, wobbling even further after chancellor Rachel Reeves appeared to be visibly tearful in the Commons – although bond markets have remained buoyant.

Remember… this is all short term, and you’ve only lost money if you sell.