Aegon has urged the government to let the Lifetime Isa undergo a trial-run before introducing the costly add-ons proposed by the Centre for Policy Studies.
The warning comes after the Centre for Policy Studies, which initially proposed the new Isa, published a report on Saturday (2 April) in which research fellow Michael Johnson set out six proposals he claimed would broaden the appeal of the Lifetime Isa.
These include:
1. Doubling the contributions bonus rate from 25 per cent to 50 per cent.
2. Doubling the contributions cap (to £8,000).
3. Introducing a default fund.
4. Building a bridge with Cash Isas, to encourage a culture of investing rather than cash saving.
5. Assimilating Child Trust Funds and Junior Isas into the Lifetime Isa, to simplify the savings landscape for children.
6. Introducing stock dividends as the default to help savers harness compounding.
But Aegon has issued a warning against these recommendations, with pensions director Steven Cameron saying the risks of extending the Lifetime Isa to the “more radical” Pensions Isa “must not be forgotten”.
The insurer instead called for the government to learn about the Lifetime Isa before extending it.
Chancellor George Osborne unveiled the Lifetime Isa in the Budget which can either be used to buy a first home or funds can be used as retirement income.
From April next year, savers can put up to £4,000 in the Isa each year and recieve a 25 per cent government bonus.
Mr Cameron said the Lifetime Isa could encourage employees to opt out of workplace pensions, which means they are in danger of “seriously losing out” in retirement if they sacrifice this in turn for saving in the Isa.
“It’s vital the Lifetime Isa is promoted responsibly.” Steven Cameron “It’s vital the Lifetime Isa is promoted responsibly,” he said, adding it needs to be made clear the same savings can’t be used twice to pay for both a house deposit and a retirement income.
Mr Cameron said it will take time to assess if the new Lifetime Isa will be truly used as a retirement savings vehicle or simply as a house deposit savings plan.
The so-called ‘Pensions Isa’ had been widely debated months before the Budget, with many experts rejecting the proposal following concerns it would be damaging to peoples retirement prospects.
Industry figures have argued the Lifetime Isa could be more attractive to savers than the current pensions system, and therefore could lead to the end of the pensions industry as we know it.
Mr Cameron said the Pensions Isa would add “unwelcome complexity” for savers and undermine auto-enrolment.
“Proposals to extend the Lifetime Isa to the workplace looks very much like the Pensions Isa, creating these same issues and need to be considered with extreme caution.”
katherine.denham@ft.com
