Employees who have been automatically enrolled should be warned away from the Government’s new Lifetime Isa, according to a committee of MPs.
In its report on automatic enrolment, the Work and Pensions Committee says the Government should conduct urgent research on the implications of the Lifetime Isa, launched by the Chancellor in the Budget.
The influential panel, chaired by Labour’s Frank Field, notes few workers will be able to contribute to both a Lifetime Isa and a workplace pension, and adds for workers already contributing to a pension, there should be a Government communication campaign illustrating that any decision to opt-out “is likely to result in a worse outcome for their retirement”.
The Committee also says it would expect the Government to review the implications of the Lifetime Isa before the Autumn Statement, and said it would seek to review evidence ahead of its introduction in April.
However, AJ Bell head of technical resources Gareth James says: “There is certainly a risk that savers will opt for the Lifetime Isa over a pension, but for some – particularly younger people looking to buy a first home and the self-employed – this will be a perfectly sensible decision.
“There is no reason why the Lifetime Isa and auto-enrolment can not work together, but it is critical that the Government finalises the rules so a concerted communications drive can begin. It is vital consumers are fully aware of the merits of both Lifetime Isas and pensions so they can make informed retirement planning decisions.”
But James adds policymakers should steer clear of allowing savers to withdraw money early from their Lifetime Isa, only to repay it later, in line with US rules for the 401(k).
He says: “This added flexibility would present a clear and present danger to auto-enrolment, and would exacerbate the risk of people failing to build up a sufficient pot for their retirement.
“Closing the UK’s savings gap must remain the number one priority, over and above any short-term wheeze designed to win votes.”
The MPs also heard evidence that the “Workie” marketing campaign designed to raise awareness of auto-enrolment among small and micro employers portrayed compliance as “soft and fluffy and somewhat optional”.
As a result, it has recommended that marketing be refocused on helping employers understand their duties, and the consequences should staff not be enrolled into pensions.
The committee says: “We recommend that DWP and TPR adapt auto-enrolment communications to focus on the financial consequences of non-compliance and emphasise that auto-enrolment cannot be ignored.”
Finally, Field’s committee also re-iterated his call for a new Pensions Bill, allowing The Pensions Regulator to enforce minimum standards for master trusts, as well as new measures to protect member assets in the event of a master trust winding up.
Field said: “Auto-enrolment has been a tremendous success that will ultimately see approximately 9 million people newly saving, or saving more, in a pension.
“Crucially now we must do much more to ensure that people’s savings are put in the best possible place, and are secure. To this end, we greatly look forward to seeing a Pension Bill in the Queen’s Speech this week. This is what we and others have been calling for.”