An inquiry into auto-enrolment by the Work and Pensions Committee has re-opened to consider new evidence on whether the Lifetime Isas (Lisa) could undermine workplace pensions.
MPs on the committee are inviting further written evidence by 17 April on the potential inpact of the new Isa on auto-enrolment opt out rates.
The move follows concerns over a potential conflict between the Treasury strategy of getting people saving with the more flexible Lisa, and the DWP’s auto-enrolment objective of ensuring people have sufficient income in retirement.
In his March Budget, the chancellor announced the introduction of a Lifetime Isa, sparking fears it could undermine pensions as people may choose to save in a product they can withdraw money from to buy a house, instead of their employer pension.
A lack of understanding about where their money would be better off, or the benefits of employer contributions, were also flagged.
In evidence to the committee on 23 March, Huw Evans, director general at the ABI, said: “The critical element of all this is that it doesn’t end up encouraging employers to say ‘Choose the Lisa instead’ and thereby trying to duck out of their contributions.
“That would obviously run completely contrary to the grain of public policy that’s been agreed on a cross-party basis for the last ten years.”
Mr Evans said if more affluent under-40s transfer cash from their existing Isa into the Lisa to earn the government contributions, that would not necessarily be a good use of public money.
Joanne Segars, chief executive of the Pensions and Lifetime Savings Association, told the committee: “We would be quite concerned if people took up the Lisa option at the expense of matching contributions into their pension scheme.”
|WPC inviting further written evidence on the following by 17 April:|
|• To what extent is the Lifetime Isa compatible with auto-enrolment and the Government’s wider pension strategy? What impact could the introduction of the Lisa have on opt-out rates?|
|• To what extent will the Lisa fill gaps in retirement saving among the self-employed? Are there more appropriate alternatives?|
|• Which groups would be better/worse-off saving into the Lifetime Isa than they would be under auto enrolment?|
|• What kind of guidance should be made available to help young people choose where to save their money?|
|• What impact will the option of using Lisa savings to purchase a home (or potentially ‘other specific life events’) have on pension savings?|
Jonathan Rowley, director of Sheffield-based Hamnett Wealth Management, said: “The Lifetime Isa a good initiative although it doesn’t come into effect until 2017; the chancellor has habit of announcing things in advance of their coming into being.
“The key is in the name: auto-enrolment. People will automatically be enrolled into a workplace pension but the Lifetime Isa will still be something you apply for as a top up. Affordability will be key if you’re paying tax, a student loan, and contributing towards a pension. You can only take it up if you’ve got disposable income.”