Flagship Government product Lifetime ISA is due to be launched in two months
But, over two thirds (69%) of people don’t understand how it works or even what it is
Highlights importance of clear explanations and risk warnings before people invest
The Lifetime ISA (LISA) was one of former Chancellor George Osborne’s flagship announcements, designed to facilitate and encourage saving amongst younger generations either for a first home or for retirement. The new tax wrapper is open to those between the ages of 18 and 40 and will see the government gift savers up to £1,000 a year up to age 50, which could amount to a bonus of £32,000 over a lifetime, provided it is used for an eligible purpose.
But, with only two months until launch, awareness is low amongst the very age group the LISA has been designed for. One in three (36%) have never heard of it and a further one in three (31%) millennials, those aged 16 to 34, don’t understand how the LISA will work. However, after a brief explanation, almost half (46%) of millennials expect to take one out, a third (32%) suggested they would use it to save for a house deposit and a quarter (26%) show an interest in using it to save for retirement, which raises concerns.
Millennials are crying out for greater incentives to save, with 37% asking for greater financial help from the government to save for retirement. There’s a clear need to help them understand what is available, while also helping them choose the most appropriate vehicles, particularly those who don’t seek advice. In particular, the LISA is very unlikely to be the most efficient way for employees to save specifically for retirement. A better option already exists: the workplace pension, with the benefit of government top ups and employer contributions.
Steven Cameron, Pensions Director at Aegon, comments: “With younger generations calling for greater incentives to save, it’s important we highlight the options already out there, with generous incentives for those saving in workplace pensions, and a further option particularly for first house purchase in the soon to be launched LISA.
“Young people face real challenges in saving for a first home while also thinking further ahead to retirement and any initiatives which get them saving more, or sooner, are a good thing. The LISA will be attractive for prospective first time buyers but for employees saving for retirement, workplace pensions almost always offer greater incentives than the LISA 25% bonus.
“Education and information is key, particularly as not everyone will seek financial advice when starting saving. People clearly need to be informed of the options out there, but also which of these is likely to deliver the best outcomes for their needs. One of the major concerns we’ve had from day one is that younger workers will opt out of their workplace pension, forego valuable employer contributions, and instead save into the LISA. There is a real risk of LISA undermining the Government’s successful automatic enrolment initiative. But for the self-employed, who don’t benefit from auto-enrolment, the LISA offers an alternative retirement savings vehicle, with particular benefits for those who are basic rate taxpayers.”
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