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AJ Bell launches Lifetime ISA: how does it compare?

Written by: Paloma Kubiak
AJ Bell has launched a stocks and shares Lifetime ISA, becoming the fourth investment provider to offer the homebuyer and retirement savings scheme. How do its charges stack up against the rest?

The AJ Bell Youinvest LISA provides DIY investors access to funds, shares, investment trusts, Exchange Traded Fund (ETFs), gilts and bonds, as well as AJ Bell’s passive and ‘favourite’ funds.

Its minimum investment amount is £25 per month. Andy Bell, chief executive of AJ Bell, said: “Many people are still not saving enough, if anything, and the Lifetime ISA may be a catalyst for some younger people to start the investing journey. Almost half of our customers have told us they intend to use it as part of their long-term savings so we are expecting it to be popular.”

The government launched the LISA in April to help young people save for a house, or for retirement. See’s Lifetime ISA guide for full details.

People aged 18-39 can open an account and save up to £4,000 each tax year into either a cash or investment version of the product and receive a government bonus of 25% each year up until the age of 50.

The money must go towards a first home worth under £450,000 or for retirement at age 60 or over.

AJ Bell becomes the fourth investment platform to offer the LISA, following Hargreaves Lansdown, Nutmeg and The Share Centre. Currently there’s just one cash LISA offering on the market, from Skipton Building Society, while Foresters Friendly Society recently launched a With Profits LISA.

How Does AJ Bell’s Lifetime ISA stack up?

In the 2017/18 tax year, the government bonus (maximum £1,000 per year) will be added at the end of the tax year, while from 2018/19, the bonus will be paid on a monthly basis.

Charges in all cases will apply to the fund value at the time the charge is calculated. But based on an annual representative £5,000 LISA contribution (including government bonus), AJ Bell said its annual platform charge is 0.25% which means a £12.50 cost.

It said this makes it cheaper than the three existing stocks and shares LISAs in the market. Here’s a comparison of LISA fees based on three of the most popular funds, including Vanguard, Woodford and Fundsmith:

Annual cost comparison of stocks and shares LISAs:

Provider Platform charge Investment charge Total Annual cost on a £5,000 LISA
AJ Bell + Vanguard Lifestrategy 0.25%* 0.22% 0.47% £23.50
Nutmeg Fixed Allocation Portfolio 0.45%** 0.17% 0.62% £31
Hargreaves Lansdown + Vanguard Lifestrategy 0.45%* 0.22% 0.67% £33.50
Nutmeg Fully Managed Portfolio 0.75%** 0.19% 0.94% £47
Share Centre Positive portfolio 0.00% 1.94% 1.94% £97
AJ Bell + Woodford Equity Income 0.25% 0.75% 1.00% £50
Hargreaves Lansdown + Woodford Equity Income 0.45% 0.60% 1.05% £52.50
AJ Bell + Fundsmith Equity 0.25% 0.96% 1.21% £60.50
Hargreaves Lansdown + Fundsmith Equity 0.45% 0.96% 1.41% £70.50

Table for illustrative purposes only. *On LISA investments up to £250,000 **On investments up to £100,000 – Source: AJ Bell

It is also worth checking your individual fund’s investment charge. There are thousands of funds to choose from, each with different fees.

Hargreaves Lansdown, which has some of the highest LISA costs, said that charges aren’t always the most important consideration: choice of funds, access (such as via mobile app) and service also matter to customers.

What investment returns could investors expect from a LISA?

We asked the four investment platforms about the estimated returns after charges. Here’s what they told us:

AJ Bell: “It is impossible to put a figure on it when there are so many investment options open to customers.”

Hargreaves Lansdown: “5% is a good estimate of a long-term investment return after all charges.”

Nutmeg: “Our calculator assumes a 5% return on funds invested, and this is based upon the FTSE All Share return over the last decade of 5.8%, minus fees.  As with all investments, your capital is at risk, and past performance is not a reliable indicator of future performance. This calculator is intended as a guide only and we do not guarantee a rate of return.”

The Share Centre: “The Cautious Fund targets income of 4% and aims to achieve a combination of income distributions of approximately 4% per annum and capital growth in excess of the IMA Mixed Investment 20-60% Shares Index.

“The Positive Fund aims to achieve a combination of income distributions of approximately 2% per annum and capital growth in excess of the IMA Mixed Investment 40-85% Shares index.

“The Adventurous Fund aims to achieve capital growth in excess of the IMA Flexible Investment Index.”

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