Over a quarter of millennials think the Lifetime Isa will be a more tax efficient retirement savings vehicle than auto-enrolling in a workplace pension.
While half of the 1,000 22 to 36 year olds surveyed by pensions technology firm Dunstan Thomas had not heard of the Lifetime Isa or did not know what it was for, 25 per cent still said they might save in to one.
27 per cent thought it would be better taxed than an auto-enrolment pension plan, and 38 per cent did not know if a Lifetime Isa or a pension would have better tax advantages for them.
Dunstan Thomas concludes: “In view of these findings the scope for misbuying or misselling looks significant.”
The Lifetime Isa is due to go live in three months’ time, offering a 25 per cent annual government bonus for people under 40 on savings up to £4,000.
However, unless used for a first home deposit, during a terminal illness or after retirement age, a 25 per cent exit charge will apply.
This is assessed on total funds within the Lifetime Isa, meaning that savers can get back less than they put in, for example on an investment of £800 that attracted a £200 government bonus, but was then hit by £250 exit charge on the total £1,000 in the vehicle.
From April 2019, employers will have to contribute a minimum of three percent on top of a five per cent minimum staff contribution under auto-enrolment.
This is currently one per cent on top of one per cent from staff.