• Unique features of LISA, including exit charge, create particular regulatory challenges
• Presentation of exit charge must meet ‘clear, fair and not misleading’ test
• Beneficial to some savers but potentially detrimental to others
“While the Lifetime ISA will be an attractive new savings vehicle for some, many savers have alternatives which could better meet their savings needs. The FCA’s regulatory regime needs to focus on helping savers make the right choices, particularly where they are not benefitting from advice.
“When saving for retirement, virtually all employees will be better off making full use of their workplace pension where they receive a valuable employer contribution. We are pleased that the FCA will require all those promoting the LISA to warn employees that it is not a good idea to choose a LISA over a workplace pension.
“While the ability to use LISA to save for either a first house purchase or for retirement may seem like a positive and flexible feature, it creates real challenges when it comes to deciding on an appropriate investment strategy. Short term saving for a house deposit suggests a cautious, cash-based investment while stockmarket investments, with scope for above inflation returns, are more suited if saving long term for retirement. An investment strategy that doesn’t match savings objective can have disastrous consequences and this poses real challenges for any saver undecided on what they plan to use their LISA for.
“LISA is also ‘bucking the trend’ in more modern products by imposing an exit charge if money is withdrawn other than for house purchase or after age 60. The FCA is right to focus on ensuring savers are fully aware of the potential for this penalty and that they could get back less than they paid in. The fact that both the exit charge and the bonus are set at 25% could well disguise this penalty so presentation will be key to avoid failing the FCA’s ‘clear, fair and not misleading’ communication test.
“Those currently saving through a Help to Buy ISA need to understand the pros and cons of transfer funds into the LISA, including becoming subject to an exit penalty.
“Interactions with pensions, the exit charge and complex investment decisions all point to the benefits of seeking professional advice.”
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