Employers warned of Lisa misbuying risk

Andy CheseldineEmployers could face future regulatory action if Lifetime Isa is offered alongside pension without the pros and cons of each being fully explained, trustees and HR professionals have been warned.

Speaking at LCP’s DC pensions conference last week, LCP partner Andy Cheseldine warned delegates that offering the Lifetime Isa alongside pension risked snaring employers in suitability challenges from employees who later found they had made a bad choice.

Drawing parallels with the Department for Health and Social Security’s ‘Breaking the Chains of Company Pensions’ campaign of 1988, which led to the pensions misselling debacle that led to billions being paid in redress, Cheseldine warned that employees could mis-buy the new Lifetime Isa and later claim against employers, if the product was offered as part of the benefits package without sufficient suitability communications and warnings.

Cheseldine said: “The Lifetime Isa will work for the under 40s who want to buy a house. It will work for people who have matched their contributions from their employer, and it will work for those under 40 who want to use it for AVCs in a DB scheme. There are about 6.5 million people in DB schemes, of 2.5 million will be eligible because they are under 40. And 90 per cent of them are public sector workers. Who drafted this legislation?

“My real concern is that people will mis-buy Lifetime Isas. They look nice and simple on the face of it. But remember 1988 when the Department for Health and Social Security paid millions of pounds for adverts telling people to ‘break the chains of company pensions’. That was the government advertising that you did not have to be a member of your companies pension scheme, which then led to the pensions misselling scandal.

“I have a real concern that something similar is going to happen here. Members will pay into the Lisa. Then when they pull their money out, they lose their bonus and investment growth, they lose the 5 per cent charge and they also haven’t received the employer contribution. Who are they going to blame? The danger is it might be the employer. There is a real need to ramp up communications to make sure they understand what the differences are.”