The Lifetime Isa will be good for auto-enrolment because it will make saving for a first home more affordable, thereby leaving the under-40s freer to save for a retirement as well, Fidelity’s head of pensions has claimed.
Speaking at a recent The Tax Incentivised Savings Association’s Lifetime Isa Conference, Richard Parkin said young people already prioritise saving for a house deposit over a pension, and those who can’t afford both will opt out of auto-enrolment regardless of whether or not there is a Lifetime Isa.
Far from encouraging opt-outs, he said the government’s 25 per cent top up on the Lifetime Isa would make saving for a first home more affordable, making it less likely that younger savers would have to choose between a pension and a home of their own.
“I suspect that most of those people who are trying to save for a house - it is emotionally a very important thing for people - if they can’t afford to save for a house and save for a pension, they’ll have probably opted out of a pension plan already,” Mr Parkin said.
“What the Lifetime Isa does is it actually gives them a vehicle that will allow them to hit their savings target more quickly and therefore give them the opportunity to get back into retirement saving through auto-enrolment.
“So turning the whole question around, I actually think the Lifetime Isa, if positioned properly, could be fantastic for auto-enrolment.”
He said research by Fidelity showed 41 per cent of 18-40 year olds who owned their own home were contributing to a pension plan. That contrasted with only 21 per cent of renters in the same age group. He said this suggested homeowners were more likely to contribute to a pension scheme.
Mr Parkin’s optimism was in stark contrast to Now: Pensions director of investment Rob Booth’s pessimism.
Speaking at the same conference, Mr Booth said he was particularly concerned that employers might encourage their employees to take up a Lifetime Isa to save themselves money.
“We’ve certainly had inquiries from some [employers] who want to be able to offer a workplace Lifetime Isa and asking us what we’re doing about it,” he said.
He went on: “Finance will probably have a word with HR, saying, ‘If we could provide the Lifetime Isa, we could save a bit of money on our pension bill.’ I don’t know if that’s true, but there’s probably those conversations going on.”
But even if those conversation did not go on, he said the poor reputation of pensions - thanks to the “contagion” around the likes of the BHS and Tata Steel schemes - meant people might be biased towards Isas, which have a better reputation than pensions even if, in reality, a pension is a better option.
William Annison, an employee benefits consultant with HWWA Consulting, said his employer clients had shown no interest so far in the Lifetime Isa.
However, he agreed there was a financial incentive for employers to favour the Lifetime Isa over auto-enrolment. But he said only “bad employers” would take that route, because it would not be in their employees’ interest.
He agreed with Mr Parkin that people already prioritise saving for a house over retirement, and said it was unlikely that the Lifetime Isa would have a negative impact on AE. “It might have a small impact, but this becomes more of a question in 2019, when personal contribution rates go up to 5 per cent,” he said.
james.fernyhough@ft.com
