Industry figures have criticised the newly announced Lifetime Isa, which offers a 25 per cent government bonus to help people under the age of 40 save for retirement or to buy their first home.
In today’s Budget, chancellor George Osborne said a new Isa will be introduced from April 2017.
Up to £4,000 can be saved each year until the age of 60, when it must be used as retirement income or withdrawn to help buy a first home.
There is a 5 per cent exit fee for people wanting to withdraw funds from the Isa before the age of 60. Savers who exit early not recieve the government bonus.
Nick Hungerford, chief executive of Nutmeg, said early exit fees of 5 per cent could sting savers who expected the product to offer full flexibility.
Matthew Harris, director of Dalbeath Financial Planning, said the devil will be in the detail with the Lifetime Isa.
He said: “If it is similar to a Help to Buy Isa and you get the benefit at the end - as long as interest rates on the Isa are good - it could be a complete no brainer.
“We were told he wasn’t going to introduce a pensions Isa, but this kind of is a pensions Isa for all intents and purposes.”
Mr Harris said for anyone who isn’t a first-time buyer, it makes “complete sense” to use this for retirement to give it a 25 per cent boost to contributions made.
Dean Mirfin, technical director at Key Retirement said the introduction of a new lifetime Isa could pose a “direct threat” to pensions.
He said: “Giving greater access and incentives may well seem a great addition, especially for younger savers, but could this be yet another barrier to pension savings where there is commitment and focus on retirement?
“At a time when auto-enrolment is engaging well with younger workers could this pose a direct threat to the one thing the government has worked hard to create - a workforce focused on a secure retirement.”
Michelle McGrade, chief investment officer at TD Direct Investing, said this is Mr Osborne’s “first stab” at pension simplification.
“Rather than tinkering with the old regime he is dreaming up a new one.”
Ms McGrade said this is “particularly pertinent” as those aged between 18 and 34 are more affected by their knowledge and confidence to invest.
Elliott Silk, head of employee benefits at Sanlam, said the new Isa adds to an “already complex pensions landscape that people just do not understand”.
He pointed to research which found nearly three in ten UK’s non-retired over 60s population are not even aware of the pension freedoms, nearly a year after they came into force.
“Time is of the essence here: give people the opportunity to access the advice or guidance they need to prevent a ticking time bomb.”
katherine.denham@ft.com
