Savers could be more than £34,000 better off with the new Lifetime Isa compared to a pension, by True Potential Investor has claimed.
Involving surveys of more than 18,000 people over three years, the online investment site’s study showed the average UK saver aged less than 40 already puts 38 per cent more into their Isa compared to their pension.
Figures suggested savers aged 18 to 40 set aside £186 each month into their pension on average.
By comparison, they make monthly savings into their Isa of £257.
Until the Budget announcement, pensions tax relief and employer pension contributions have cancelled out the difference between pensions and Isas.
But with the introduction of the Lifetime Isa, and its 25 per cent bonus added by the government, combined with savers’ already higher Isa contributions, by the time those not yet in their forties reach 50-years-old the Lifetime Isa could be worth £123,360.
This compares to their pension fund, which based on current savings trends, would be worth £89,280 including basic rate tax relief, increasing to £111,360 after including employer contributions at 3 per cent of the average workplace pension salary.
David Harrison, managing partner at True Potential Investor, said: “The pensions industry is queuing up to say the Lifetime Isa is bad news and will confuse people, which is both highly ironic and wrong.
“The fact remains that savers voluntarily put more money into their Isa each month compared to their pension.”
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, but otherwise has a hefty early exit fee of 5 per cent.
Adviser view:
Gretchen Betts, chartered wealth manager in the Bridgend office of Broadway Financial Planning, said the new Lifetime Isa sounds very attractive and True Potential’s figures show this could be of real benefit to savers.
“However, I feel that the current scope of savers that will fall into this bracket are limited,” she explained.
“Those that are saving for their first home will see real benefit, but thereafter I can’t see them utilising this for further savings.
“It also isolates those who have already purchased a home but are trying to save hard to either take a step up the ladder or looking for more attractive and flexible savings.”
ruth.gillbe@ft.com
