Lifetime ISA fears ‘overblown’– True Potential

The LISA,  which will be available to those under the age of 40 from 6 April, has faced criticism from the personal finance sector, with a number of commentators expressing concern it could have a detrimental effect on how consumers treat their pensions.

Warnings have also been sounded that savers who plan to opt out of workplace pensions in favour of the LISA could lose valuable employer pension contributions. In contrast, however, True Potential said many people were planning to take a “best of both worlds” approach.

Of the 2,000 18 to 40 year-olds canvassed by the group, almost half (46%) said they intended to maintain pension contributions and use the LISA to bolster their savings, while one-fifth (18%) were planning to use a pension instead of a LISA. Around one-third (36%) plan to save into a LISA instead of a pension.

The LISA will allow those aged between 18 and 40 to open an account and save up to £4,000 a year until the age of 50 and then access the savings either to buy a first house or help fund their retirement. The scheme rewards savers with a 25% government bonus.

While True Potential said the new saving scheme had succeeded in engaging people, it argued its flaw was not allowing employers to contribute. Employer contributions would give savers a “much better choice”, the group added.

True Potential managing partner David Harrison said: “Talk of a surge in workplace pension opt-outs after the LISA’s introduction appear to be overblown. The UK has a burgeoning savings gap that pensions have failed to address, so it is right we look for new ways to save.”

He added: “At long last, we have a savings product that has already succeeded in engaging savers.”

‘No illustrations’Concerns over the LISA have not been limited to the risk of pension opt-outs, however. Suffolk Life has pointed out that, for those wanting to open a cash LISA, no specific illustration process exists to demonstrate what an investment might look like. The company argued this could result in detrimental outcomes for savers.

Suffolk Life head of product and insight Greg Kingston said: “If you invest in a cash ISA, you get no illustrations at all, despite the fact it could be used for retirement.

“If you invest in an investment LISA you don’t get a personal illustration – you simply get sample returns based on prescribed ages of 18, 25, 30, 35 and 40. You don’t even get a personal illustration based on the amount you’re paying in.”

Kingston added that the sample returns offered assume savers will pay the maximum into the LISA, which could bear no resemblance to the actual assets being invested in.

He said: “There is no way you could make a comparison between saving into a pension and savings into a LISA from the illustrations and, even if you tried, it would be an unfair one.”