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‘Vote winning’ lifetime ISA will harm pension saving

Joanna Faith
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Joanna Faith

The new lifetime ISA is a ‘vote winning’ strategy that could have a ‘detrimental effect’ on retirement saving in the UK, the boss of a financial planning site has warned.

The new style ISA – or LISA, as it has become known – was unveiled during last week’s Budget. Available from April 2017, it will allow people under 40 to save up to £4,000 a year and receive a 25% top up from the government, but the money must either go towards their first home or their retirement.  Early withdrawals will carry a 5% charge.

Before it is introduced, Mark Soper, co-founder of RetireEasy.co.uk, said more research needs to be done to calculate the effect the LISA will have on workplace pensions.

He said if savers are enticed into opening a LISA instead of a workplace pension, they will lose out on ‘valuable’ employer contributions.

“Once the gloss fades off this shiny, new product, we will see there is an insidious, popularist element to its launch. Initially a vote winner for the chancellor, it can only serve to decrease the amount of money savers set aside for retirement,” he said.

“The allure of the LISA’s early access and possible tax free withdrawals may lead to many workers withdrawing from or opting out of their workplace pensions with the associated loss of the employer’s pension contribution.

“At best, it provides a layer of complexity for an individual to consider before joining a workplace pension – which is counter intuitive to automatic enrolment; at worst, this could prove disastrous in the longer term for a healthy retirement plan.”

See YourMoney.com’s Lifetime ISA guide for full information.