• Lifetime ISA could encourage individuals to save earlier
• Could act as a barrier if choices become more complex
• Inclusion of employer contributions would ‘destroy’ auto enrolment
There are underlying concerns that the Lifetime ISA is being used to ‘test the water’ for a future move to taxing pensions like ISAs, with no tax relief up front, as Steven Cameron, Pensions Director at Aegon explains:
“The Lifetime ISA is targeted at younger savers and the self-employed and its aim to increase savings within these groups is welcome. However, the details of the offering along with how it is presented to savers could make the difference between it being a welcome addition to the savings scene or the interloper that destroyed the positive progress of auto enrolment.
“For individuals such as the self-employed who have no chance of an employer pension contribution, the ability to save with a Government bonus for retirement or a house deposit will have appeal. But we must make clear that anyone who chooses a Lifetime ISA over a workplace pension is giving up what can be a very valuable employer contribution.
“Millions of individuals are beginning to benefit from the initiative to automatically enrol them into a workplace pension with an employer contribution. As a policy this relies on it being beneficial for virtually everyone to be saving in a pension. If employers were in future allowed to contribute to the Lifetime ISA, there would be some individuals who’d be better off in the pension and others in the Lifetime ISA. This would make it impossible for employers to know they were doing the right thing for each individual, destroying the premise on which auto enrolment is based.
“It will be important to offer savers clear and balanced information to help compare the different features and benefits of the Lifetime ISA against workplace pensions. Adding further Lifetime ISA features that don’t exist in pensions, such as a borrowing facility or penalty free access for other life events, will complicate comparisons and should be deferred until we see how individuals are using their Lifetime ISAs.”
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