Insurers have expressed the importance of taking a cautious approach towards the new Lifetime Isa, as failure to do so could lead to weakened workplace pension pots.
The Lifetime Isa, also known as the “Lisa,” was designed to help people save for their first home and also their final retirement fund with the same account, boosted by a bonus payment from the UK Government itself. This scheme was unveiled back in 2016 but was only officially launched as recently as last week.
The Association of British Insurers (ABI) has expressed concern about the Lisa, highlighting the fact that people could be charged significant amounts of money if they dip into their pot for any purpose other than a first home or retirement.
There are also fears that people may begin to abandon their workplace pensions in favour of a Lisa instead, a move that insurers consider to be a huge gamble. Studies conducted by the Pensions and Lifetime Savings Association have revealed that as many as 40 per cent of 18- to 39-year-olds are ready to stop paying into their workplace pensions because of the launch of the Lisa.
To determine the true effect and value of Lisas, the ABI is actively urging the Government to assess the impact of these schemes on pension auto-enrolment.
“The Lifetime Isa will be a very useful savings mechanism for some people, but savers should only invest in a Lisa if they fully understand how they work,” said Yvonne Braun, the ABI’s Director of Long-Term Savings and Protection Policy.
“In particular, people should not forego their workplace pension to save for retirement in a Lisa, as most people will be better off saving into a workplace pension because of the employer contribution.
“It is key that the Lisa does not undermine the success of auto-enrolment in workplace pensions, and the ABI urges Government to monitor whether the Lisa is having an impact on the auto-enrolment programme.”
Several institutions are holding off providing Lisas for the time being, although the likes of The Share Centre and Nutmeg have claimed that they will be providing them to customers immediately.
Auto-enrolment has largely been regarded as a great success in the UK, and whilst the new Lisa undoubtedly offers a variety of benefits, the abandonment of workplace pensions may create a great deal of unrest. Those who are self-employed or work as contractors are also expected to take advantage of the Lisa, as it provides them with a chance to save for the future even though they are not working on a full-time basis for a company.