High and hidden charges attached to the Lifetime Isa could reduce the value of savings pots by about 13 per cent, according to a Pensions Policy Institute.
Speaking today (13 June) at an event to launch research conducted by the Pensions Policy Institute, Daniela Silcock, head of policy research at the organisation, raised concerns about the fact the Lifetime Isa (Lisa) is not going to be part of the private pension market.
As a result, the Lisa will not be regulated in the same way as private pensions and subject to charge caps.
Ms Silcock said: “This means, unless there are changes, that Lisa savers won’t be protected by the recent raft of regulations that have been brought in to protect more vulnerable people in workplace pensions.”
Ms Silock said the PPI had recently undertaken modelling looking at the impact of charges which compared a 0.3 per cent charge to stakeholder charges, which is 1.5 per cent for the first 10 years then 1 per cent for every year afterwards.
She said: “That can reduce your pot at retirement by about 13 per cent so charges do have a massive effect.
“We’ve been trying to find out what the average charge in an Isa is and that is quite difficult to find but the cap standard is around between 1 and 3 per cent so we are looking at quite high charges compared to private pensions.”
She added if the UK goes down this route it is likely that providers of Lifetime Isas will be responsible for monitoring eligibility and compliance and this will cause an extra administrative burden for providers, and it is likely this would be covered by higher charges for savers.
Steve Webb, former pensions minister and director of policy at Royal London, said it was concerning that savers would soon be choosing between products with very different charging structures and Lifetime Isas investors would potentially pay “high and hidden” charges.
He said: “The existing Isa charging structures are opaque at best.
“If they are expensive to run then you are comparing a product with relatively high charges with a product with a cap that has relatively low charges.”
Mr Webb added the administrative burden of running a Lifetime Isa is already significant because it is necessary to keep the government contribution pot and the member contribution pot separate, because if a consumer takes the money out early then the whole of the government contribution has to be refunded alongside the interest earned on this contribution.
John Stirling, chartered financial planner at Walden Capital, said Lifetime Isas and workplace pensions - although on the face of it offer similar investment experiences - are targeted at different audiences.
He said: “Workplace pension members have been enrolled without active participation - competition is not strong and therefore a cap is appropriate.
“Lisas will have full competition between brands. Customers who wish to differentiate on price should have the option while those who want to differentiate on features or benefits have the opportunity.”
ruth.gillbe@ft.com
