18 April 2016

Anything that persuades more people to think about saving should be welcomed.

But any such new initiatives should be accompanied by sensible financial advice, or they run the risk of confusing and ultimately disengaging people.

Hearing Chancellor George Osborne introduce the new ‘Lifetime ISA’, for example, reminded me of some crucial findings from BlackRock’s latest Investor Pulse report.

In this broad survey of 4,000 people in the UK, 29% said they were confused about financial planning and 24% were not confident about it. Asked about their feelings when saving, 21% replied they were worried and 22% were anxious.

Even among a wealthier subset of 750 British respondents – those with investable assets of at least £100,000 and those earning £100,000 or more per year – 11% felt ‘overwhelmed’ when investing and 17% were anxious about it.

And that was before the new addition to the ISA family, which will pay under-40s a £1 bonus from the government for every £4 they save, up to £4,000 a year.

For many, that will be a good deal – but not for all. It could be an attractive way to save for retirement for the self-employed, for instance. But others could be better off focusing on their company pension scheme, which in effect offers the same tax benefits as well as contributions from the employer.

Another interesting group is people looking to buy a house for the first time. There is a special exemption from the 5% ‘early exit’ penalty in the Lifetime ISA for first-time buyers. That would seem to put it in competition with the ‘Help to Buy ISA’ launched last year, although one important distinction beyond the slightly different allowances is that Help to Buy ISAs must be held in cash, whereas Lifetime ISAs can be used for investments.

Such permutations underline how important it is for savers and investors to seek professional advice, on everything from deciding their financial goals to selecting the most tax-efficient savings vehicle and constructing an appropriate investment portfolio.

A core finding of our Investor Pulse survey this year was that those who sought professional financial advice ended up feeling more knowledgeable, relaxed and empowered about investing, as well as holding better balanced portfolios.

So with all the advantages of the new Lifetime ISA – the potential £1,000 annual bonus, the option of accessing the money to buy a house, and the ability to invest rather than save cash – this could be a great opportunity to engage a new generation of investors.

And for anyone thinking only of keeping their ISA in cash, I would recommend BlackRock’s Capital Market Assumptions tool for a helpful illustration of the risks and rewards of investing. Updated every quarter, it allows advisers and their clients to chart five and 10-year projected returns and volatility for all the major asset classes, based on the insight and expertise of our investment teams.

For example, the Capital Market Assumptions currently show that over the next five years, UK large-caps could produce an annualised nominal return of 6.8% – far better than cash. Or, with less than half the volatility, UK corporate bonds could return 2.6% a year – again, well ahead of cash.

Such returns, complemented by the government’s 25% Lifetime ISA bonus, make for a compelling compounding opportunity. Sound financial advice will be essential in helping savers grasp it.

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Those who sought professional financial advice ended up feeling more knowledgeable, relaxed and empowered about investing