Key points from research:
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61% of workers under 40 would open a LISA, and of those 23% plan to do so straight away
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72% in London would open a LISA, and 37% straight away, reflecting the difficulty for young people getting on the property ladder in the capital
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The Government bonus (57%), followed by the flexibility of being able to use savings towards a first home rather than having it tied up until retirement (36%), are the main attractions of the LISA.
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Of those who would consider opening a LISA, 68% would save into a LISA alongside a pension, with 49% saving more to a pension and 19% more to a LISA
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Those who wouldn’t consider opening a LISA cited the early exit penalty (41%) and preferring to save through a pension to take advantage of employer contributions (34%)
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Saving priorities tend to be short term. Saving for a home and holidays topped the lists, with paying off debt and saving for everyday living costs ranking higher than retirement savings.
Commenting on the appeal of LISAs for house purchases, Paul Waters, Partner at Hymans Robertson, said: “We need to look at the reality for young people. A 25% bonus on savings towards a first home will be an irresistible and much appreciated leg up on to the property ladder for many. The fact that LISAs have even greater appeal among London’s young workers undoubtedly reflects the difficulties faced getting a foot on that first rung in the capital. 72% in London would open a LISA, and 37% straight away.”
Explaining why LISA investment won’t be at the expense of pension saving, he said: “We need to move away from looking at pensions and LISAs as competing products. One should not be at the expense of the other. Younger workers don’t see them as an ‘either/or’ decision. They see them as a product that could give a boost to their savings. But they also appreciate the boost to savings you get through employer matching contributions in workplace savings. This is supported by the fact that most of those who would open a LISA would still save more to their pension. There is a growing disparity in wealth between the generations. Anything that gets younger people into the savings habit should be viewed as a positive.”
Discussing what needs to happen to ensure LISAs are an effective savings vehicle, he added: “For LISAs to be an effective long-term savings vehicle, however, they must follow a different path to mainstream ISAs. The underlying investments need to be effective to meet the goal set – most ISA money is simply in cash - and pricing should be appropriate and consistent with workplace pension solutions. If employers offered these through the workplace, they could provide the governance required to ensure they were ‘fit for purpose’. 44% of those surveyed said that ‘accessibility through the workplace’ was an important factor when choosing a product to save through.”
Explaining the need for a shift from a spending to savings culture in the UK, he concluded: “We have chronic levels of under-saving in the UK. Post Brexit, the number of UK workers that won’t be able to retire with an adequate income has increased from two thirds to three quarters. The biggest issue we face is that as a nation is that we’re under-saved.
“Gross UK saving has halved in the past 40 years, household debt has tripled and consumption keeps rising. We need to restore a savings culture. Any incentives, be they tax relief, government bonuses or employer matching contributions, have to be viewed as a good thing.
“While they may help, they won’t solve the problem. That requires a shift to cohesive, long-term pensions policy-making – something that has been lacking for many years.”
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