Former pensions minister Steve Webb has said “fat penalties” of 5 per cent on the Lifetime Isa compare uncomfortably to exit charges on workplace pensions, and branded it little more than a fine on savers.
The director of policy at Royal London said exit penalties on the Lifetime Isa are at odds with government pressure on product providers to cap or scrap exit charges, which many have now done followin pressure from independent governance committees.
“It sits uncomfortably alongside other statements made by the government,” Mr Webb said.
Announced at this year’s Budget, the Lisa has faced criticism for coming with a hefty exit penalty, and over fears that it could derail pension saving.
The Lisa 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 for those who withdraw funds from the Isa before the age of 60, it also comes with a 5 per cent exit fee and a loss of bonus unless they are buying a house.
Mr Webb said: “It seems weird as the FCA is consulting on exit fees. It has been told by the government that it has to set a cap on exit fees because they stop people accessing their own money, and accessing pension freedoms for the government-created product, to then have a fat exit penalty.”
Dan Farrow, director of Chelmsford-based SBN Wealth Management, said: “I’m quite comfortable with the 5 per cent charge, as the benefits still outweigh the options and this is a product that aims to stimulate longer-term saving.
“As long as the 5 per cent penalty isn’t ‘enjoyed’ by the provider, and the risks are set out clearly at the start, then I don’t see a problem.”
ruth.gillbe@ft.com
