Among the many areas where customers must be warned that pensions may be better for them than a LISA are:
• Employers must pay a pension contribution for all staff eligible for auto enrolment and this will be lost if people opt out in favour of a LISA
• Higher rate taxpayers may get more favourable tax relief on their pension contributions
• Pensions have a maximum exit fee of 1% - and in most cases no exit fee – whereas LISA has an effective exit fee of 61/4% as a minimum other than on the three approved lifetime events
• Pension contributions can continue to be made up to age 75 but saving into a LISA must stop at age 50
• Pensions have a default fund chosen by experts, but LISA’s health warnings will remind investors that they have to pick an investment strategy to match their objectives
• Pensions can be encashed from age 55, but the LISA’s bonus on retirement savings is not available until age 60
Morten Nilsson, CEO of NOW: Pensions said: “For young savers, the Lifetime ISA is going to be very tempting. It can be used to buy a first house, and that comes ahead of retirement sequentially and we know that behaviourally people place a higher value on nearer term events. This could easily result in an increase in auto enrolment opt outs.
“But, savers shouldn’t be too hasty to turn their backs on workplace pensions and I believe that nearly all the savers that read these risk warnings will end up choosing a pension over an ISA because of its many advantages.”
Morten Nilsson added: “There is one further warning consumers should heed but which FCA can’t say. That is will a future Government remain committed to the LISA? Even if they do, will they honour the Chancellor’s pledge that LISA withdrawals after age 60 will be free of tax? Or will those locked in LISA pots prove too tempting a target for future Governments?”
Research* conducted by NOW: Pensions earlier this year revealed nearly a third (30%) of people aged between 18 and 39 plan to save in both a workplace pension and Lifetime ISA when the Lifetime ISA launches next year.
The research found that:
• 30% say they plan to save both in a workplace pension and Lifetime ISA
• 16% say they will continue to save into a workplace pension and not open a Lifetime ISA
• 9% will stop saving into a workplace pension and put their savings into a Lifetime ISA
• 11% don’t intend to save into either
• 19% don’t know
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