Research by provider Zurich has revealed that people who reject workplace pensions in favour of the new Lifetime Isa could see their retirement pots shrink by more than a third.
In late March this year, an inquiry into auto-enrolment by the Work and Pensions Committee re-opened to consider new evidence on whether the Lifetime Isa (Lisa) could undermine workplace pensions.
Zurich has warned that the new Lisa could encourage savers to opt out of workplace schemes, missing out on tens of thousands of pounds in employer pension contributions.
As of April 2017, individuals under 40 will be able to save up to £4,000 a year into the new Lisa until they reach 50, and for every £4 they save, the Government will add a £1 top-up.
According to Zurich’s analysis, a basic-rate taxpayer aged 25 who saved £60 a month into a Lisa could build up a retirement pot of £24,971 by the age of 60.
However, the same individual saving into a pension under auto-enrolment would see their pot grow to £37,144, according to Zurich.
Martin Palmer, Zurich’s head of corporate funds propositions, said: “A typical basic-rate taxpayer saving £60 a month over 35 years would be more than £12,000 worse off in a Lifetime Isa than a pension.”
Andrew Pennie, marketing director at Intelligent Pensions, said people of different ages would have different financial priorities.
He added: “You can see why a house would take priority over retirement. It would be a downside of the Lisa if this was to happen to any significant extent.”