Advice and investment firm True Potential has called on the government to include the Lifetime ISA in auto-enrolment after it found workers were twice as likely to choose the product than a pension.
True Potential echoed MPs concerns in a report out in May, which warned a failure to offer LISA as an option for auto-enrolled savers could create a surge in opt-outs.
MPs had asked the government to look into the effect of LISA on workplace pensions, which has so far seen about six million people automatically enrolled.
True Potential warned savers who opt for the LISA in exchange for traditional workplace pensions could miss out on around £20,000 worth of employer contributions over the lifetime of their savings pot (based on 3% employer contributions on a £26,000 salary over 32 years).
The LISA will launch next April when it will allow people to save up to £4,000 a year towards a pension or a house, receiving a 25% government top-up.
True Potential said its research found twice as many workers looked set to save into the Lifetime ISA than a workplace pension.
The firm’s poll of 2,000 employees showed 30% of those aged 25-40 would choose a LISA as their retirement savings product, compared to 15% who would opt for a pension. In the younger age group of 18-24 year-olds, 64% said they would invest in a LISA to help buy a first home.
The research also found employees who are higher up the income scale are twice as likely to save into both a pension and a LISA compared with those at the lower end.
True Potential Investor managing partner David Harrison said: “The government is caught between a rock and a hard place now because the Lifetime ISA is sure to be popular, but it has rolled out a national pension scheme. Few people will be able to afford to save into both so, in reality, there will be a choice. Given ISAs’ popularity and the added bonus of a 25% top-up, MPs are right to be concerned about pension opt-outs.”
He added: “The only reason that pensions may outperform the LISA is because employers can contribute to a pension. The solution is not to stymie the Lisa, but to open it up to employer contributions as well and give savers the best of both worlds. It is time to think of automatic enrolment as national savings not a national pension scheme.
“If employers could contribute to Lisa savings, we’d have a level playing field and people could choose the best product for them. That is the way to avoid a surge in workplace scheme opt-outs and it avoids the LISA becoming a complementary product used mainly by the better off.”
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