You are here: Home -

Workers twice as likely to choose Lifetime ISA over pension

Written by:
Twice as many workers will save into a Lifetime ISA over a pension and miss out on thousands of pounds worth of valuable employer contributions as a result, a survey suggests.

Online investment management firm, True Potential, polled 2,000 employees across Britain and found 30% of 25-40 year olds will choose a Lifetime ISA compared with 15% who will opt for a workplace pension.

Lifetime ISAs – or LISAs – are set to launch in April 2017 and will give people under 40 the chance to save up to £4,000 a year and receive a 25% government top-up. The funds can only be used to buy a first home or for retirement.

While the LISA was broadly welcomed by the savings industry when Chancellor George Osborne unveiled the idea during his budget speech in March, critics suggest savers will shun workplace pensions and miss out on vital employer contributions and tax relief.

Six million Brits have been automatically enrolled into a workplace pension since the government rolled out its scheme to get more people saving for retirement.

By opting for a LISA over a pension, True Potential said savers could miss out on £20,000 worth of employer contributions.

The firm’s concerns echo a warning from a group of MPs earlier this month, which said the LISA could “distract from the aim of auto-enrolment”, namely to get more people saving more for their retirement.

It is now calling on the government to allow employers to be able to contribute to LISAs to avoid a surge in opt outs.

David Harrison, managing partner at True Potential Investor, said: “The government is caught between a rock and a hard place now because the Lifetime ISA is sure to be popular, but they have 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.

“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.”

There are 0 Comment(s)

If you wish to comment without signing in, click your cursor in the top box and tick the 'Sign in as a guest' box at the bottom.

The savings accounts paying the most interest

If one of your jobs this month is to get your finances in order, moving your savings to a higher paying deal i...

Everything you need to know about being furloughed

Few people had heard of ‘furlough’ before March 2020, but the coronavirus pandemic thrust the idea of bein...

Coronavirus and your finances: what help can you get in the second lockdown?

News and updates on everything to do with coronavirus and your personal finances.

What will happen if rates change

How your finances will be impacted by a rise in interest rates.

Regular Savings Calculator

Small regular contributions can build up nicely over time.

Online Savings Calculator

Work out how your online savings can build over time.

Having a baby and your finances: seven top tips

We’re guessing the Duchess of Cambridge won’t be fretting about maternity pay or whether she’ll still be...

Protecting family wealth: 10 tips for cutting inheritance tax

Inheritance tax - sometimes known as 'death tax' - can cause even more heartache for bereaved families. But th...

Travel insurance: Five tips to ensure a successful claim

Ahead of your summer holiday, it’s important to make sure you have the right level of travel cover or you co...

Money Tips of the Week

Read previous post:
windfall Mailbag: What should I do with my financial windfall?

'I've been left a significant amount of money as part of an inheritance and I don't know where to start. Do you have any...