Almost half - 44 per cent - of Britons aged 18 to 39 and eligible to take out a Lifetime Isa say they would be most likely to use it to save for retirement.
A total of 14 per cent of the 1,018 such adults questioned in June by YouGov for Zurich said they would use the Lisa to put away money for a first home.
Despite assurances by the government that the Lisa is not a replacement for a pension, thousands of younger people could be drawn to it as the main way of saving for retirement, stated the pension provider.
Zurich pointed out those who opt for a Lisa over a workplace pension will miss out on valuable employer contributions.
In March this year, an inquiry into auto-enrolment by the Work and Pensions Committee re-opened to consider new evidence on whether the new Isa could undermine workplace pensions.
Meanwhile in May, it was revealed the vast majority of self-invested pension providers viewed the Lisa as a “direct attack” on the pensions industry.
Now, research by Zurich has shown that a basic-rate taxpayer saving £100 a month into a workplace pension over 20 years would build up a nest egg of £45,231, on the assumption the growth rate for equities of 2.5 per cent and the employer contribution is 3 per cent.
The same person saving into a stocks and shares Lisa would see their pot fall by almost a third, to £31,097 - again assuming the growth rate for equities is 2.5 per cent - leaving them £14,000 worse off.
Savers who withdraw their money from the Lisa before age 60 will have to repay the government bonus, plus a 5 per cent exit fee, unless they use the cash to buy a first home.
However, Zurich found this would fail to deter 14 per cent of people from dipping into a Lisa, with a further 22 per cent unsure, meaning over a third - 36 per cent - could withdraw their savings prematurely.
Alistair Wilson, Zurich’s head of retail platform strategy, said the Lisa is a valuable extra option for people who can afford to put more aside for retirement, or those saving for a first home; but it is not a replacement for a pension.
“Young people who opt out of auto-enrolment would lose valuable employer contributions, resulting in a substantially lower income in old age.”
He added that if used as the sole savings vehicle, the Lisa could undermine the UK’s long-term savings culture, with the worry being that young people will treat it as a piggy bank pension, which they can dip into when they need extra cash.
“It’s concerning that as many as a third of people could withdraw their long-term savings in a Lifetime Isa ahead of retirement, which may leave them without an adequate income in old age.”
Daren O’Brien, director at London-based Aurora Financial Solutions said along with choice and access to saving comes responsibility.
“You can’t offer choices and the ability to take money out of savings and then tell people not to do it.
“These products are designed specifically because the younger generation may need access to their savings and won’t save into a long term pension anyway. They may not be able to afford to save for retirement now.
“Hopefully in later life (and before they withdraw any benefits) they may have better financial awareness and realise that they should leave it for retirement.”
ruth.gillbe@ft.com
