Chancellor Philip Hammond has just delivered his first Budget speech, but even before he took to the dispatch box the Government faced an uphill struggle in delivering successful pension policy.
Projects set in train by his predecessor George Osborne, notably the Lifetime Isa, risk falling flat with consumers, as Money Marketing data reveals two-thirds of adults have never heard of the product.
One senior source in the pensions industry claims the Treasury is so desperate for the Lifetime Isa to succeed that officials are calling providers every week asking if they will be offering it.
At the same time, the introduction of an advice allowance, which allows savers to access their pension pot to pay for advice, has also fallen on deaf ears.
Both the Lifetime Isa and the advice allowance are due to be rolled out next month.
As another raft of policies are unveiled, it is worth examining the reasons behind the low level of interest in these current initiatives, and whether or not it is providers’ and advisers’ responsibility to drive take-up.
Last week, Money Marketing revealed the details of a YouGov survey conducted with Zurich that showed two-thirds of UK adults aged between 18 and 40 have never heard of the Lifetime Isa.
A group of 1,420 eligible savers aged between 18 and 40 were asked about the product in the survey that questioned 4,157 adults overall.
The research found just 3 per cent of savers knew about the Lifetime Isa and planned to use it instead of a pension, while 17 per cent intended to use the Lifetime Isa alongside a pension.
Fourteen per cent said they knew about the Lifetime Isa but did not plan to use it, and 66 per cent had not heard about the initiative before taking the survey.
The Lifetime Isa was launched with much fanfare by Osborne in the 2016 Budget. 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 are eligible to withdraw funds from the account to buy a first home worth up to £450,000, or it can be accessed from age 60 or in the event of terminal illness. Other withdrawals incur a 25 per cent exit charge, including on growth, except in the first year of the product, 2017/18.
In the research all consumers were also asked about their knowledge of the pension advice allowance.
The allowance lets consumers draw £1,500 in three £500 tranches from their pension, provided they are not taken in the same tax year. The allowance can also be used to access robo-advice services, and applies to any retirement advice except areas such as inheritance tax planning which are not “strictly related to retirement”.
Eighty per cent of savers said they did not know about the allowance before taking the survey.
Of the people who did know about the allowance, 2 per cent said they planned to use it and 19 per cent said they did not plan to use it.
A Treasury spokeswoman says: “We announced the Lifetime Isa at Budget 2016. Since then, we’ve been working closely with the regulators, providers, and personal finance journalists to ensure wider public awareness of the policy. As with other new products, we will continue to work with these stakeholders over the coming months.”
A Treasury impact assessment published in October estimated more than 200,000 people will save into a Lifetime Isa in 2017/18. However, with several banks and providers signalling they will not launch the product when it goes live in April, a potential lack of advertising could hit the product’s initial take-up.
AJ Bell senior analyst Tom Selby says: “It is hard to know what a good level of awareness is with something like the Lifetime Isa. I thought a third was quite high, given there has been no Government promotion of it. None of the big banks will have one in the early stages and they are the ones who would potentially roll out a mass TV campaign.”
A recent Freedom of Information request revealed the Treasury expects providers to advertise their own products and the Treasury does not have a separate 2017 budget for marketing the Lifetime Isa.
The Treasury says it will supplement provider advertising with “factual information” about the Lifetime Isa online as well as using Government and free communication channels to raise awareness of the product.
AJ Bell plans to offer a Lifetime Isa later this year. Other banks and providers also say they are likely to come to market later in the year, with many awaiting further details from the Treasury.
Scottish Widows says it and parent company Lloyds Banking Group will review whether they will offer the Lifetime Isa once regulations are finalised. Barclays also says it will confirm its position once it has reviewed further guidelines.
Standard Life, Aviva, Royal London and Prudential all say they are considering plans to launch the product but will not be ready to offer it on 6 April. Hargreaves Lansdown and Nutmeg will be offering the product from April, with Nutmeg saying it is aiming for the beginning of the tax year.
Aviva retirement solutions policy head John Lawson says it is not unusual for new financial policies set out by the Government to take time to become widely recognised.
He says: “Neither the Lifetime Isa nor the pensions advice allowance are available yet but I would expect to see interest in both policies to increase once they are launched.”
Royal London policy director Steve Webb also considers the Lifetime Isa will gain traction once big firms start offering it but says promoting the advice allowance will be a “tougher nut to crack”.
Webb says: “You will not have the advantage of big financial institutions paying for multi-million-pound television advertising campaigns. This will be a slow burn and all the players have a part to play.
“Advisers have an incentive to flag it up to their clients…A blanket publicity campaign is probably not going to happen so the important thing is identifying who are the people who could most benefit and trying to work out routes of reaching them.”
Lawson agrees advisers have a part to play in promoting the advice allowance.
Apfa director general Chris Hannant says the trade body will communicate with members when the allowance comes into force, reminding advisers it is there to be used.
Hannant says: “I imagine awareness of this will grow, and if it is there for the long term and not tinkered with, awareness will spread and people will know that you can get a tax break for this kind of help.
“It is incumbent on advisers and providers to make people aware of the allowance at point of use through pension communications.”
He adds public bodies, such as Pension Wise and the Money Advice Service, also have a duty to refer to the allowance in their communications.
Zurich corporate fund propositions head Martin Palmer says the YouGov survey results suggest there is unlikely to be significant demand from consumers to use their pension pot to pay for advice.
Palmer says: “However, it is still vital the Government and the industry make people aware of the option so they can make more informed decisions on their retirement.”
With previously announced Government initiatives falling flat, amid the new policies to contend with, Webb says there is a danger of “announcement-itis”.
He says: “There is sometimes a danger things don’t get followed through. I would agree it is no good the Government just creating the advice allowance and sitting back, they also need to be thinking about how they can encourage take-up.”
Selby agrees. He says: “The issue with the advice allowance is who is going to promote that on a mass UK-wide scale? What is the point in creating an incentive if no one knows it exists? The extent it will boost take-up of advice will be mitigated by the fact most people don’t know it is there.”
Head-to-head: Providers on the merits and challenges of the Lifetime Isa
On the surface, the Lifetime Isa is a good thing. It offers Government support for under- 40s for what are likely to be their two greatest financial challenges – saving for a first home and for retirement. And individuals do not even need to decide which of these they are saving for – what could possibly go wrong?
The Lifetime Isa needs to be considered alongside other options, particularly when saving for retirement. The Government and industry both agree auto-enrolment has been a big success so far.
But however tempting Lifetime Isas may be for those desperate to get on the housing ladder, if it means under-40s give up employer pension contributions, their retirement income will suffer big time. The self-employed do not have the benefit of auto-enrolment. For those under 40 who are basic rate taxpayers, the 25 per cent Lifetime Isa bonus matched the pensions tax relief they would get on pension contributions and with no tax to pay on the way out, it looks attractive. But higher rate taxpayers may still find “proper pensions” more tax-efficient.
The Lifetime Isa is less controversial if intended to be used for a first house deposit. But even there, it needs to be considered alongside the Help to Buy Isa. If Help to Buy is already meeting contribution needs, and the individual does not want to take on the volatility risk of stocks and shares, why transfer over and open yourself up to the exit penalty?
The exit penalty coupled with the complex decisions when comparing Lifetime Isas with alternatives make it right that the FCA is requiring
extensive risk warnings. And it is these many and varied risks to customers which are leading potential providers to take a “wait and see” approach and proceed with caution.
Steven Cameron is pensions director at Aegon
We know there is appetite for Government-incentivised schemes and the Lifetime Isa will be no exception. The Help to Buy Isa has proved to be enormously popular, with over half a million people opening an account in the first few months alone.
With the cost of living rising, the average house price for a first-time buyer standing at over £200,000 and wage inflation practically non-existent, a helping hand from the Government will be the only solution for some.
The Lifetime Isa eases the burden on the Bank of Mum and Dad who forked out over £5bn to children for house deposits in 2016. The 25 per cent bonus is generous, so for first-time buyers or parents with some money to put away for their child’s deposit, the Lifetime Isa is no-brainer.
The Lifetime Isa has very clearly been positioned first and foremost for house purchase. Retirement planning is secondary and it is not a pension substitute. With proper guidance we do not believe there is a risk the Lifetime Isa will have any impact on auto-enrolment or workplace pensions.
The savings gap widens year on year. The industry has been crying out for more incentives to get people saving and the Lifetime Isa is a very positive step in that direction. Young people are often overlooked by the financial services industry, but not this time. Hargreaves Lansdown has chosen to support them and it is undoubtedly the right thing to do.
Sian Thomas is a financial adviser at Hargreaves Lansdown