The Association of British Insurers represents the long-term savings industry, so of course we support anything that encourages people to save more.
But one of the big unanswered questions is how the new Lifetime Isa (Lisa) will interact with automatic enrolment.
For the industry, the litmus test for the success of the Lisa will be whether it works with or undermines the flagship policy, which has seen nearly six million new savers signed up since 2012.
Opt out rates for auto-enrolment have been very low to date, particularly among the youngest workers, underlining that young people do “get” the idea of pensions.
This success is at risk if younger people start believing they can get a better deal by saving in a Lifetime Isa.
This is why it is very important government are crystal clear that most people saving for retirement will be better off paying into a workplace pension where they will receive employer contributions and tax relief, than if they pay into a Lisa.
It is very important government are crystal clear that most people saving for retirement will be better off paying into a workplace pension.Appropriate guidance from the new pensions guidance body should support people in taking these decisions.
The introduction of the Lisa may also mean people feel that they face a trade-off between saving in a Lisa for a deposit, and saving in a workplace pensions.
But for many, these options are not and should not be mutually exclusive.
We need to remember that the fundamentals have stayed the same.
People are living ever longer, so we need people to save more for their retirement.
Pension savings is critical for this.
If someone pays into a Lifetime Isa and then buys a house, they will still need to fund their retirement.
The primary purpose of the Lifetime Isa should therefore be to support people in saving for a deposit for a house.
More widely, the introduction of a savings vehicle specifically for housing may send a subliminal signal to the population that investing in residential housing is the best form of investment.
More demand for housing isn’t necessarily what the UK, or younger people, most need.
Indeed, the Treasury’s own policy costings document admits that the Lisa “is more likely than not to lead to higher demand for the relatively fixed supply of housing in the UK, and so to higher prices”.
Government have added 0.3 per cent to the level of house prices by the end of the forecast although they describe the effect of the policy as “highly uncertain”.
The interaction of housing and pension savings is an under-explored area.
To inform this debate, we have commissioned research to analyse the patterns of saving and homeownership and model its impact on the economy. The findings will be launched at our Transforming Long Term Savings conference on 19 April.
Overall, we continue to believe that our proposal of a savers’ bonus to reform the current system of tax relief with a single rate would improve retirement savings for the majority and help lower income, and indeed younger earners, to have a better share of the government’s tax ‘top ups’.
The Lifetime Isa must not be used to try to deliver a Pension Isa through the back door.
Yvonne Braun is director of long-term savings policy at the ABI
Ms Braun will discussing these developments along with other key issues at the ABI’s Transforming Long Term Savings Conference on 19 April. Click here for more details about the conference.
