RegulationJul 25 2016

Government refuses to issue Lifetime Isa warning

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Government refuses to issue Lifetime Isa warning

The government has said it will not issue consumers with warnings against the perils of opting out of auto-enrolment in favour of a Lifetime Isa (Lisa), because it is “not the government’s place to advise individuals how and where to invest their money”.

However, the government said it would ensure that “factual sources of information” on the Lisa were available on Gov.uk prior to the launch in April 2017.

In making these comments, the government was responding to the Work and Pensions Committee’s May report on the auto-enrolment sector, in which the latter voiced concerns that the Lifetime Isa would cause people to opt-out of AE.

The committee called on the government to “make it clear that the Lisa is not a pension and that for employees who have been automatically enrolled, any decision to opt-out is likely to result in a worse outcome for their retirement”.

It also called on the government to “conduct urgent research on any effect of the Lisa on pension saving through AE”.

The government said, while it would conduct an ordinary impact assessment of the Lisa, it would not “commission new research to predict the impact of the Lifetime Isa on individual behaviour in advance of implementation”.

The government’s comments came amid growing opposition to the Lisa.

Last week, former pensions minister Baroness Ros Altmann said the Lisa posed “dangers” to the pensions system.

Life company Aegon called for a “rethink” of the Lisa.

The committee also recommended that AE master trusts be better capitalised and governed, a suggestion that DWP has already begun to act upon, with a pensions bill introducing capital adequacy requirements and “fit and proper” governance standards due in the autumn.

The government was also receptive to the committee’s call for better communication with businesses on the penalties of failing to comply with AE rules.

However, it did not accept the committee’s recommendation that it specify exactly how a business was liable in the case that the pension scheme it chose for its employees failed.

It said it was “difficult to envisage that someone would have a strong claim against an employer in regards to this”.

The government also re-affirmed its desire for the pensions dashboard be “industry-led” as opposed to government-led.

That was in response to a call from the committee to review “the degree of government intervention necessary to deliver on its pledge” to have the dashboard up and running by 2019.

Daren O’Brien, a business adviser with Aurora Financial Solutions, said he did not expect the Lisa to have an immediately negative effect on AE. However, he said it may do in the long-term, because it was likely to open the way for a Pension Isa.

Mr O’Brien said the government was wrong to conclude that employers would not be liable if the schemes they chose for their employees failed, calling the issue a “concern”.

He said auto-enrolment was “just sitting there waiting” for the next mis-selling scandal.

james.fernyhough@ft.com