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‘Young people set to choose Lifetime Isas over pensions’


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.



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FCA wants risk warnings on Lifetime Isas

The FCA wants savers into Lifetime Isas to receive risk warnings about penalty charges and opting out of auto-enrolment amid concerns about how the product will work in practice. The regulator has published a consultation paper today on the rules governing the promotion and distribution of Lifetime Isas, which are due to launch in April. […]

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There are 3 comments at the moment, we would love to hear your opinion too.

  1. As young people don’t have any money this is an early contender for most pointless survey of the year.

    I have no time for these “Gotcha!” surveys that exist entirely to ask silly questions and then put out a handwringing PR headline when they get silly answers. How does Dunstan Thomas know that 27% of those surveyed were not correct in saying that a lifetime ISA would be more efficient for them? Did it conduct a full fact find on each respondent?

    Funny how 73% gave the “correct answer” in total – 38% said “don’t know” and presumably 45% said “auto-enrolment is better” – and yet the least popular answer is the one that is quoted.

  2. 5% net exit charge then! Sounds familiar, it’s just that this one doesn’t reduce.. Are exit charges back in vogue and OK now then? 🙂

  3. Stop it now before it is too late

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