Lifetime ISA bonus paid monthly: take action as it could sit in a no return cash account
The government’s property and pension savings hybrid – the Lifetime ISA (LISA) – was launched in April 2017 but the number of providers offering the product has remained slim.
To date, there is just one cash LISA, several investment versions, a With Profits LISA, one specifically for the police force and an app-based offering.
Those aged 18-39 can save up to £4,000 each tax year and will receive a government bonus of 25% each year (maximum £1,000) up until the age of 50.
In the 2017/18 tax year, the government bonus was added at the end of the tax year, but from the new 2018/19 tax year, the bonus is paid monthly.
However, the way the government bonus is added to investment LISAs varies between the providers.
Some will pay the bonus into existing investment holdings. Others will pay the bonus in a separate cash or holding account which means investors won’t achieve returns on the sum. As such, investors will actively have to move the sum or potentially miss out on returns.
As an example, 10% growth on £4,000 is £400, but 10% growth on £5,000, including the government bonus over the year is £500 – a £100 difference.
Both AJ Bell and The Share Centre confirm the bonus will be added to the cash sections of investment LISAs, rather than being distributed between existing investment funds so investors will need to actively manage the bonus every single month.
For the 30,000 Hargreaves Lansdown LISA customers, whether the bonus is paid in cash or in existing holdings depends on how money is currently deposited into the LISA.
While investors may miss out on investment growth, one benefit of this move is that investors’ bonus won’t attract the usual platform charges.
Where and when is your bonus paid?
AJ Bell, Hargreaves Lansdown and The Share Centre explain their position:
AJ Bell: The LISA bonus should be paid on 24 April, though it can be paid later. The money will be distributed to over 5,000 LISA customers “very quickly”.
A spokesperson, said: “We have been and will continue to provide customers with information around how LISAs work but we won’t be providing any specific communication at the point bonuses are credited to their accounts.
“Our platform is an execution-only service so it isn’t for us to decide where the funds are invested or when – that’s the customer’s decision. If they want to set up a regular investment they can do that using our platform and we provide a wide range of information and investment solutions to help them make their investment decisions.”
Hargreaves Lansdown: The platform says it expects to receive payment of the bonus by around 4 May. The money goes straight into the investor’s Vantage account so is “subject to all the normal protections”, it says.
However, for regular savers into funds within the LISA, the bonus will be invested in the same funds chosen for the contribution, in the same proportions.
Hargreaves says: “Where they have contributed a lump sum, or they save regularly into shares, the bonus will be deposited as cash, ready to be invested.”
For bonuses after 6 April, Hargreaves says customers will receive it by the 6th day of the following month.
The Share Centre: The funds will be paid directly into the customer’s account “as soon as possible after it’s received” and the bonus will be added to the cash section of the investor’s account, says Paul White, head of marketing.
He adds: “The Share Centre is an execution-only company, with an execution-only LISA, so there is no automatic investment of the bonus cash. Therefore, customers will need to choose how and when to invest within the three ready-made LISA portfolios.
“Our ready-made Lifetime ISA is an investment vehicle, not a cash account; therefore growth would be earned through investment by the client.”
He added it will be communicating with customers when the bonus has been allocated to their account to inform them of the subsequent options they have.
“This is an investment product, not a savings account, so we expect that clients who have opened an account with us will be prepared to invest,” White adds.
What about the other Lifetime ISA providers?
Foresters Friendly Society: The society offers a With Profits LISA, which comes with an interim 1.75% annual bonus rate. It said it will apply for the government bonus “as soon as HMRC give us access”.
The bonus will be paid into the Order Insurance Fund “immediately” and Paul Osborn, chief executive of Foresters, says it calculates an average £617 will be paid per policy.
MetFriendly: The LISA launched in February 2017 and is available to UK police staff, contractors or volunteers, as well as their immediate family. Holders receive a guaranteed 2.5% bonus in the first year, a variable 1.5% bonus after and a possible final bonus after four tax years of investment.
The bonus is added to members’ benefits as soon as it is received. A spokesperson says: “Customers don’t need to take any action as MetFriendly will automatically claim bonuses for members from HMRC and add these to the benefit they ultimately receive. All monies held form part of policyholder funds and so are not paid into separate accounts.”
Moneybox: The Moneybox LISA is a savings app which lets users round-up their spending to the nearest pound to invest the change. It told us it sees an average of 350 LISA accounts being opened each week. A spokesperson added: “HMRC has asked that all LISA providers submit their customers’ bonus claims by 19 April. We understand we will receive these bonuses within 7-14 days. As soon as we receive them, the bonuses will be invested into customers’ accounts according to their chosen allocation.”
Nutmeg: It started applying for the government bonus from 6 April for the more than 8,000 LISA customers and says it will keep customers informed of the progress of payments.
The spokesperson, says: “The bonus is paid into our client cash account at Barclays Bank where it is segregated and protected. The money will be invested on customers’ behalf, at their risk profile as part of our usual trading cycle. This will happen within two working days of the bonus arriving.”
It confirms the bonus is paid directly into customers’ LISA account and the new funds are invested automatically in line with their selected risk level. “Customers don’t need to take any action,” it confirms.
OneFamily: Launched in February 2018, the OneFamily LISA offers investors a choice of two funds, depending on their savings goals. Where the LISA is being used to buy a first home, it says it has an average deposit of £2,600 while for those saving for retirement, it’s £2,000.
The bonus is guaranteed to be paid straight away to customers on 27 April.
A spokesperson says there will be a “very small window” where the money is held by OneFamily before being distributed to customers: “As with any funds we hold on behalf of customers there is industry wide protection in place,” they add.
Further, the LISA is invested in stocks and shares and the bonus will be “added directly to the fund customers have chosen”.
Skipton: This is the only cash LISA provider. Skipton says the bonus will be paid into customer accounts on or before 4 May.
A spokesperson, says: “We will email all customers to let them know once their bonus has been paid into their accounts. The day we receive payment from HMRC, we pay it directly into the accounts, so customers don’t lose any interest.”