Pension providers have expressed concern that the new Lifetime Isa could disrupt the long-term savings market. But could it be about to upset the platform world too?
The platform industry is no stranger to change and has adapted to a spate of recent legislation, from the RDR to pension freedoms. However, it is fair to ask whether the cumulative effect of reform is beginning to take its toll on platforms and if the arrival of the Lifetime Isa could prove to be a tipping point.
The mechanics of getting the Government’s new savings vehicle on the road will force platforms to make significant changes under the bonnet. Providers will have to put in place at least eight checks and balances to make it workable, ranging from the £4,000 contribution limit to bonus cancellations for savers aged 50.
By some estimates this could take up to two-thirds of the build time that was required for the pension freedoms.
With this in mind, it will be interesting to see how many platforms have the appetite or capacity to offer it. Whether it is the daunting technology build, high costs, insufficient resources or potential low return on investment, there are plenty of feasible reasons to believe platforms could turn their back on it.
On its own, the absence of the Lifetime Isa from a platform may not cause too much concern for advisers. But with so much heavyweight reform of late, a number of platforms have already skipped over other updates, leaving gaps in their capabilities.
For example, not all providers invested in UFPLS under the freedoms and others are yet to introduce the far simpler Flexible Isa, which came online earlier this month.
The problem for providers is whether they can afford to pass over the Lifetime Isa without beginning to look light on functionality. Faced with an increasingly static set of features, advisers might start to question their platform’s commitment to the market or whether it still allows them to meet all of their clients’ needs.
But even for providers that do get on board, the Lifetime Isa poses significant challenges. Following the recent treadmill of legislative reform, platforms have barely had time to bed in changes, let alone innovate. This has left some providers struggling to keep pace with the market, especially when it comes to delivering new functionality for providing flexible income in retirement.
The added burden and complexity of developing the Lifetime Isa could throw platforms off balance. This is no truer than for those currently re-platforming – already late and half way into a build, the Lifetime Isa will add yet more cost. The upshot is that platforms already feeling the strain of recent reform risk slipping further behind the pack.
Add all these factors up and the Lifetime Isa could be the straw that broke the camel’s back. It might be at the extreme end of conjecture but who is to say this will not speed up consolidation in the market, or push some players out altogether?
As a result, it will be intriguing to see how many providers end up offering the Lifetime Isa and what impact it eventually has. My view is that it will cause a headache for development teams but it is one worth suffering for the additional flexibility it will give advisers and their clients.
Alistair Wilson is head of retail platform strategy at Zurich UK Life