The Lifetime Isa is a welcome move to get people engaged in saving earlier in a product that, at face value, is simpler for most people to understand than a pension.
From April 2017, anyone under 40 can open a lifetime Isa and save up to £4,000 a year, which will have a government contribution of £1,000 a year until the age of 50 which can be used towards a new home or be saved for a pension.
The money will not be taxed when it is removed. The Government will consult with the industry on whether, like the US 401K plan, savers can return money to the account to reclaim the bonus.
It seems people can hold multiple Isa wrappers within the £20,000 contribution limit so there is a new choice for people to navigate.
More detail is also needed on how this will work, especially with regards to auto-enrolment, to ensure people don’t stop saving into a pension and use this instead.
It would be good to know more detail about the availability or otherwise of existing pension contribution relief.
Over time, one imagines there will be more convergence between Isas and pensions in the coming years and that may start as early as the Autumn Statement 2016.
There is a risk that when one allows multiple uses for individual savings, as this does, that people don’t adequately save to cover an ever-increasing period of retirement.
At the same time, further changes are coming in the form of a new delivery model that will replace the Money Advice Service, and merge the functions of The Pensions Advisory Service and Pension Wise.
Access to advice remains a concern for those reaching retirement too, as up to 480,000 people in the UK are not taking advice for, arguably, some of the most complex decisions they will face in life.
Phil Brown is head of transformation and policy at LV