Lifetime Isas: Five things you need to know about George Osborne's new saving scheme

Retirement experts fear that the Lifetime Isa is a stealthy way of replacing your pension

George Osborne is trying to lock you in until retirement (Getty Images)

This is the Chancellor's new flexible savings scheme, isn't it?

It's not very flexible, to be frank. If you're under 40, you can start a scheme from 2017 and save up to £4,000 into to it to qualify for a 25 per cent government bonus.

That sounds absolutely fabulous, doesn't it?

It's meant to. The Treasury said: "This new, flexible Lifetime Isa will encourage younger people to get into the habit of saving and will mean they no longer have to choose between saving for their first home and planning for later life."

But the reality is that if you don't stick to strict rules, you'll lose the government bonus, lose any interest paid on the bonus, and be charged a 5 per cent penalty.

What are the rules?

From April 2017, adults under the age of 40 will be able to open and save up to £4,000 each year in a Lifetime Isa – and receive a 25 per cent bonus on the savings from the Government each year. Anyone with a Lifetime Isa will be able to get a bonus on contributions made until they are 50.

So what's the drawback?

You can only get at all your cash if you're buying a first home, you contract a terminal illness, or you reach 60 – 10 years after the government bonuses have finished. If you make a withdrawal at any other time, you'll be hit with the 5 per cent penalty and lose all the bonuses and the interest on them. That's because the Government says it wants to ensure that people still have an incentive to leave funds invested for the long term. Basically, they're trying to lock you in until retirement.

Haven't we got pensions for that?

Retirement experts fear that the Lifetime Isa is a stealthy way of replacing your pension. "It looks like a backdoor policy designed to attract younger people towards Isas over pensions," said Rebecca O'Keeffe of Interactive Investor.

Lynda Whitney at the consultant Aon Hewitt added: "The Lifetime Isa could well be the Trojan horse that kills off pensions at a later stage."