The architect of the Lifetime Isa has hit back at criticisms that it will cause people to save less into pensions, arguing that auto-enrolment contributions should be channeled directly into the new savings vehicle.
The Lifetime Isa goes live on Thursday, with those between 18 and 40 able to pay in up to £4,000 each tax year, with contributions qualifying for a 25 per cent government bonus towards their first home or retirement.
In a briefing note sent out through his think-tank the Centre for Policy Studies, Lifetime Isa architect Michael Johnson says that in future, employee contributions under auto-enrolment should come out of post-tax income and straight into the Lifetime Isa, gaining the same 25 per cent bonus.
Employer contributions should be put into a new Workplace Isa to sit within the Lifetime Isa wrapper, Johnson adds, attracting the same bonus but taxed at the employee’s marginal rate, and untouchable until age 60.
Johnson says: “The Lifetime Isa is accompanied by concerns that it could be so attractive as to encourage employees to opt out of automatic enrolment, thereby missing out on their employer contributions. Such ironic flattery, that the Lifetime Isa is too attractive, is unheard of amongst savings vehicles.
“There is no intention to undermine automatic enrolment. Indeed, we now have an opportunity to reinforce automatic enrolment, by expanding its reach into the Lifetime ISA.”
In future, Johnson adds, “ideally, the Lifetime ISA will be offered by non-traditional providers such as Facebook and Google.”