The Lifetime Isa will become the next big misselling scandal and should be dropped by the Chancellor, the former pensions minister has warned.
Baroness Ros Altmann says providers who enter into the Lisa market risk regulatory action in future as it is not a simple product and should not be sold without proper risk warnings and suitability checks.
In a 12-point attack on the policy, which was launched by former Chancellor George Osborne under pressure not to introduce a pension Isa ahead of the Brexit vote, Altmann argues workers who later realise they would have been better off in a workplace pension scheme may complain to both their employer and pension provider if they forgo employer contributions or higher rate tax relief by opting for a Lisa instead of a pension.
She argues that people opting for a Lisa over a pension will have money in retirement as a result of lower contributions going in, lower investment returns and some withdrawals along the way. The amounts of money going into a Lisa will be lower than if workers put the same amount into a pension because at best they will only get the equivalent of basic rate tax relief, will not have an employer contribution, will lose any National Insurance relief or higher rate tax relief they could get on pension contributions, may spend the entire sum at 60 and are likely to be subject to higher charges.
The call comes as research carried out by Employee Benefits and Close Brothers Pensions, which surveyed 250 employer respondents, has found that just 7 per cent plan to offer the Lisa to their employees, while 33 per cent say they will not offer it and 42 per cent remain undecided.
Altmann says: “I am calling on the providers to wake up to the risks of selling Lifetime Isas to people who would be much better off using pensions for their retirement savings. I hope that the Chancellor will recognise these risks and make changes in the Autumn Statement. We should not confuse people about the best way to save for retirement – pensions are unquestionably the best for the vast majority of people. If the Treasury does not understand the risks, then I hope the FCA will clamp down on how these products are sold, to make sure there must be careful suitability checks and risk warnings before people lock money into the Lisa, thinking this is an appropriate way to save for retirement.”
Altmann’s 12 reasons why Hammond should drop the Lifetime Isa
- Lisas likely to be new mis-selling scandal waiting to happen – not simple products, need proper risk warnings and suitability checks
- People likely to have less money in retirement as a result of the Lisa
- Snatching defeat from jaws of victory as Lisas will confuse workers about how best to save for retirement
- Lisas will not last a Lifetime – behavioural incentive is to spend all money at age 60
- Lisas cost today’s taxpayers billions of pounds while still leaving a future Government to deal with millions of poor pensioners who spent it all too soon
- Less money will go into LIsas than pensions
- Less money will build up over time than with pensions
- 5% penalty on Lisa withdrawals will drain people’s resources
- Pensions are more likely to last a lifetime than Lifetime Isas. With no inheritance tax to pay on money passed on from the pension, and no 55% death tax charge, it is safe to keep the money for later life. Isas have no ‘brake’ on spending
- Lisa could help first time buyers, but we already have HelpToBuy Isa so why confuse Isas with another product?
- Lisa will be great for wealthy people – but are they the ones who need further taxpayer subsidy?
- Most Isas are held in cash with lower long-term returns but no controls on charges.