Colin Richardson, Client Director, PTL said: “The Lifetime ISA seems a valid extra in addition to all current savings arrangements. However, for all intents and purposes it is a Pensions ISA “Lite”. While the pensions system has not changed, the scope of the ISA system will be increasing. This appears to be the priority, and given the budgetary position you would expect that the scope of pensions will reduce in due course. For now, we have been given a stay of execution on anything radical happening to pensions tax relief, salary sacrifice or national insurance contributions, however, the potential success of the Lifetime ISA will very likely be held up as the catalyst for the introduction of the Pensions ISA in the not too distant future.”
PTL points to two key questions that arise out of the creation of the Lifetime ISA:
1) Will it undermine auto-enrolment?
2) Will the Lifetime ISA be more attractive than pensions?
On the impact on auto enrolment, Colin Richardson says: “While anything that encourages saving is positive, for those with little to spare, there is a danger they will opt out of their auto enrolment scheme and do this instead, thereby losing the employer contribution. The real danger for auto-enrolment may be that this equation is not grasped by some who opt-out to pay for Lifetime ISAs.
“There is a real challenge now for auto-enrolment providers to make the position clear. The Chancellor has positioned it cleverly as not detrimental to auto-enrolment in terms of tax – but it is detrimental to the overall pensions system. Because this detriment is due to the introduction of something more tax efficient this is hard to criticise.”
On whether the Lifetime ISA is more attractive than a pension, Alison Bostock, Client Director says: “For the self-employed, this is good news, as the Lifetime ISA is more flexible and tax-efficient than a personal pension.
“For the employed, giving up the employer contributions could be bad – it depends on how you prioritise owning your own home and pension savings. It perpetuates the myth of “my house is my pension” – which doesn’t work unless you can downsize and release enough capital to live on for the rest of your life.
“As long as you do both pension and Lifetime ISA, it is good news.”
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