The Pensions Policy Institute has argued the launch of the Lifetime Isa has detracted from the worthy debate on the future of pension
Speaking at the Money Marketing Retirement Summit in St Albans earlier this month, PPI director Chris Curry said the Lifetime Isa has been designed to look like a pension, but to be quite different from a pension as it is both a vehicle to buy a first property and for long-term savings.
He said the Lifetime Isa has been an unwelcome distraction from encouraging a healthy debate on reforming pension tax relief and incentivising saving.
Curry said: “It is worth bearing in mind that around the time the Lifetime Isa was announced, there was a lot of discussion within the Government and outside of it about the future of tax relief and pension saving.
“In particular, there was heavily trailed changes to pension tax relief expected in the Budget at the time which didn’t happen, and this was almost a toe in the water to see if the Lifetime Isa could be used as a mechanism to move tax relief away from pensions towards long-term savings.
“The shame of it is that’s a debate that’s well worth having. There are issues around both pension tax relief and long-term savings levels, and challenges around getting people to save to cope with everything they have to deal with in life, not just retirement. Announcing a product to be launched in a year’s time is probably not the best way to end up with the right system.”
Also at the summit, Pensions and Lifetime Savings Association director of external affairs Graham Vidler said the way the Lifetime Isa market has evolved has meant providers have been deterred from launching the product.
He said: “There are a number of risks associated with the Lifetime Isa, not least the risk of people drifting into holding long-term investments in cash, which is clearly a very inappropriate place to be. The FCA is trying to deal with that through the use of risk warnings, which has led to providers being turned off the market.”
He noted the recent launch of Skipton’s cash Lifetime Isa, which he branded a “very brave move”. Vidler questioned whether savers would challenge the 0.5 per cent interest rate on their retirement savings in years to come.
He added the complexities of the 25 per cent exit charge for unauthorised withdrawals risked hurting the perception of the Isa brand as being simple to understand.
Vidler said: “The Lifetime Isa risks throwing the Isa, a product that has been a huge success and which people are genuinely warm to, into a quagmire of uncertainty and confusion.”
But AJ Bell senior analyst Tom Selby disagreed the Lifetime Isa posed a significant risk to consumers.
He said: “I am more concerned that people are already opting out of auto-enrolment, albeit at low levels. It is a bigger concern that people are accessing their whole pension pot at age 55, getting a tax hit and sticking it in a bank account. These are the things we should really be worried about and be making a noise about.
“The Lifetime Isa will be useful for some people, and at least those who are opting out are still engaged and are making an active decision they want to be in a Lifetime Isa. It’s about choice.”