The vast majority of self-invested pension providers view the Lifetime Isa as a “direct attack” on the pensions industry, a survey by the Association of Member-Directed Pension Schemes (AMPS) has found.
Almost nine out of 10 of the 89 AMPS members surveyed said the new Isa, which was announced by chancellor George Osborne in the March Budget, would undermine pensions.
The Lifetime Isa gives savers aged less than 40 the option of using the money saved in the wrapper as a deposit on a first home, or towards their retirement.
Investors can save up to £4,000 each year in a Lifetime Isa and receive a government bonus of 25 per cent – that is a bonus of up to £1,000 a year.
Mr Osborne’s announcement has led some in the industry to express concerns that it will encourage people to opt out of auto-enrolment.
Paul Lindfield, director at Manchester-based Sedulo Wealth Management, agreed the Lifetime Isa is “a threat” to pensions, but added: “Most AMPS members in Sipps and Ssas tend to be owners and directors of businesses that are seeking professional advice and will be guided away from Lifetime Isas.”
But Ian Gwinnell, an independent financial adviser and director of All Counties Financial, said the pensions industry was “overreacting” to the introduction of the Lifetime Isa.
He said: “I fear nothing by what has come about through the Lifetime Isa,” he told Financial Adviser. “From the research we’ve done, pensions tax relief provides much better value than Lifetime Isa.”
Mr Gwinnell also downplayed concerns that younger people who can’t afford professional advice would opt for the more tangible, if “ultimately inferior,” benefits of a Lifetime Isa.
He said: “I appreciate there is a large proportion of the population that won’t get advice. But hopefully they will seek advice from their parents and other people who have had professional advice themselves.”
Back in March, Financial Adviser reported savers who decide to withdraw money early from the newly-announced Lifetime Isa could suffer a hefty 24 per cent loss to their pot.
Lowes Financial Management managing director Ian Lowes pointed out if the funds are withdrawn before the age of 60 for any purpose other than purchasing a first property, then the penalty will be severe.
Withdrawal will result in the loss of the government bonus and any interest or investment growth on this, plus a 5 per cent charge.
This, he said, ultimately translates to a 24 per cent reduction in the savings, which he argued puts the investor in a worse position than if they had used a standard Isa.
As part of the AMPS member survey, Sipp and Ssas providers were also asked how they would vote in the upcoming referendum on whether to remain in the European Union.
A slim majority – 51 per cent – said they would vote to stay in the EU, while 31 per cent have yet to make up their mind.
Sixty-one per cent said they were bored of hearing about the Brexit.
Survey findings
• One in five believe that the Pensions Tax Manual is a worthy successor to the Registered Pension Schemes Manual.
• 62 per cent haven’t seen a significant demand for the retention of capped drawdown since 6 April 2015, this compared to 48 cent in October 2015.
• Over 60 per cent of AMPS members surveyed would prefer flexi-access drawdown to replace capped drawdown, so that MPAA applies to all in receipt of drawdown pensions, a decrease from 76 per cent when compared to October 2015.
• There has also been a fall in the number of firms processing transfers to QROPS 37 per cent as of April 2016 as opposed to 43 per cent in October 2015.
Source: the Association of Member-Directed Pension Schemes (AMPS)
