Labour MP: Make advice on Lifetime Isa compulsory

Parliament-Building-UK-London-700x450.jpg

A senior Treasury official has dismissed calls to make individuals take financial advice before enrolling in the new Lifetime Isa.

In a Public Bill Committee meeting yesterday, MPs debated new clauses tabled for the legislation that will introduce the Lifetime Isa – the Savings (Government Contributions) Bill.

One of the proposed clauses would place a duty on the Secretary of State to make regulations that ensure all applicants for a Lifetime Isa receive independent financial advice.

Financial secretary to the Treasury Jane Ellison opposed the clause, aguing it is not practical for everyone who wants to open a Lifetime Isa to get financial advice because of the costs involved.

Ellison said: “Financial advice is relatively expensive. The point has been made that we do not want to disadvantage younger people and basic rate taxpayers who want to take advantage of this product. Our impact assessment and all the work that we have done indicate that the vast majority of people who take up the product will be basic rate taxpayers.”

Ellison pointed to Unbiased research that said the average cost of financial advice is £150 per hour and, with the average advice process taking around eight hours, the total bill could reach £1,200 for Lifetime Isa applicants.

She adds: “Even if we assume that that is the upper end of estimates, it is still £200 more than the maximum annual bonus that an individual could receive from the Lifetime ISA. That would create a significant barrier to all but the wealthiest individuals opening a Lifetime ISA, and I know that that is the opposite of the Opposition’s intent.”

However, Labour MP for Bootle Peter Dowd said that everyone opening a Lifetime Isa account should have to seek advice before joining the scheme.

Dowd said: “Advice is a crucial in purchasing any expensive product, be it a car, house, university education, or holiday. The advice would be offered automatically through an opt-in service, and the service provider would sign a declaration outlining the advice that the applicant received. Any provider would have to confirm the status of the applicant, whether they were enrolled in a workplace pension scheme, whether they had signed a declaration of financial advice, and whether they plan to use the lifetime ISA for a first-time residential purchase.

He added: “The opposition believe that it is only right that anyone considering a Lifetime Isa is given the opportunity to see its benefits, compared with those of other schemes on the market.”

“The new clause would: ensure that people make an informed choice, with the benefit of independent financial advice; create parity in the quality of advice for all those entering the scheme; and offer much-needed oversight and education about the benefits of the scheme.”