The FCA will extend risk warnings on the Lifetime Isa to include the risk of losing out on employer’s pension contributions.
The regulator first published a consultation on November on the rules governing the promotion and distribution of Lifetime Isas and proposed risk warnings about penalty charges and opting out of auto-enrolment.
In a policy statement published today, the regulator set out its responses to the consultation.
The FCA agrees it should amend the risk warnings set out in the consultation to include two further risks:
- The risk that investors might also lose out on employer’s pension contributions where they have a personal pension and there is an employer matching contribution structure in place; and
- The risk that investors may not consider the impact of taking out a Lifetime Isa on means-tested state benefits as opposed to saving in a pension.
The Lifetime Isa is due to launch on 6 April. UK residents aged between 18 and 40 will be able to open a Lifetime Isa and pay in up to £4,000 each tax year, with contributions qualifying for a 25 per cent Government bonus.
Savers can pay in and receive the bonus until they are 50 years old, and they are eligible to withdraw funds from the account to buy a first home worth up to £450,000.
Other withdrawals may incur a 25 per cent exit charge, including on growth, except in the first year of the product, 2017/18.
The FCA says: “We acknowledge there may be circumstances where a retail client is saving into a personal pension plan to which their employer contributes, and that choosing to save into a Lifetime Isa in preference to such a scheme might cause that consumer to forfeit employer contributions to that scheme.
“Therefore, we have extended our suggested risk warning about the potential loss of employer contributions to include personal pension schemes. In addition, because of the possibility that investors may not consider the impact of taking out a Lifetime Isa on means-tested state benefits we have also extended our suggested risk warning to address this point.”
Providers have welcomed the extended risk warnings but say the FCA could have done more.
Aegon pensions director Steven Cameron says: “With the potential for a Lifetime Isa to be held for 40 years, we believe the FCA should have gone further in specifying ongoing information and risk warnings, for example to prompt a review of investment strategy if objectives change from house purchase to retirement funding.”
Nucleus product technical manager Rachel Vahey wants to see a change to how the withdrawal charge is described.
Vahey says: “A 25 per cent Government bonus on the way in and a 25 per cent withdrawal charge on the way out will sound equitable to many people. Instead, it would be better to describe the withdrawal charge as reclaiming Government bonus plus an additional charge on the member’s own contributions.”