The Work and Pensions Committee today published the government’s response to a number of concerns and recommendations it raised in May 2016 in relation to the new Lifetime ISA (LISA) scheme set to launch in April 2017.

First announced in the March 2016 Budget, LISA will allow people to contribute a maximum of £4,000 each tax year to receive a 25% government bonus – so up to a maximum of £1,000.

The money saved must either go towards the individual’s first home or their retirement (60+).

At the time of the announcement, critics condemned the scheme amid concerns it could undermine auto-enrolment which makes it compulsory for employees to register their staff into a workplace pension.

As a result, the Work and Pensions Committee recommended that the government develop a communications campaign to highlight the difference between the LISA and workplace pensions.

In the report, the MPs stated: “It [government] should make it clear that the LISA is not a pension and that for employees who have been automatically enrolled, any decision to opt-out is likely to result in a worse outcome for their retirement. The government should also conduct urgent research on any effect of the LISA on pension saving through auto-enrolment.”

And in the government’s response published today, it stated it does recognise it is important that people have access to the right factual information on which to base their savings decisions.

It added it will ensure that factual sources of information on the LISA will be available on the official government site prior to its launch.

Further, it stated that the Budget 2016 LISA costing, certified by the Office for Budget Responsibility, “did not anticipate any revenue impact from individuals opting-out of their workplace pensions in order to save into Lifetime ISAs”.

However, the government will undertake an impact assessment on the LISA but said it doesn’t intend to commission new research to predict the impact of LISA on individual savers’ behaviour. However it added that it will continue to monitor the success of auto-enrolment in terms of workplace pension participation, opt-out rates, and contribution rates.

So far, over 6.4 million eligible workers have been automatically enrolled into a pension scheme by more than 171,000 employers.

‘Government’s response seems tepid at best’

Gareth Shaw, head of consumer affairs at Saga Investment Services, said the government’s response seems “tepid at best”.

“By refusing to look further at the effect of the LISA on auto-enrolment, the government is making clear that it doesn’t see this new savings vehicle as a threat to its flagship pension project.

“Auto-enrolment has been largely successful so far, and this should not be undermined by the headline-grabbing LISA, which will undoubtedly be very attractive to younger savers. But while the government says it is not placed to tell people where it should invest their money, it has a duty to encourage good saving behaviour. Saving into a pension, with the addition of upfront tax relief and largely tax-free growth, is one of the most sensible financial steps someone can take, and this should be enthusiastically encouraged.”

He added that Saga hopes the committee will “continue to hold the government’s feet to the fire on this issue”.