Pensions  

Lisa won’t cause auto-enrolment exodus: Fidelity

Lisa won’t cause auto-enrolment exodus: Fidelity

Investment firm Fidelity has found a tiny proportion of people in a workplace pension scheme would opt out in favour of a Lifetime Isa (Lisa), dampening fears the new savings vehicle will undermine the budding auto-enrolment project.

In a survey of 2,000 people, Fidelity found the majority of pension savers – 56 per cent – would not take up a Lisa.

Just 7 per cent said they would opt out of their pension altogether in favour of a Lisa, with the remaining 37 per cent saying they would consider using both together.

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Announced by chancellor George Osborne in the 2016 Budget, the Lisa will allow people under the age of 40 to use the tax-efficient wrapper to save either towards a deposit on a first home, or for their retirement.

The government will provide an added incentive in the form of an annual 25 per cent top-up on the value of the Lisa.

It is due to be launched in April 2017.

Many in the pension industry have said the Lisa is a “direct attack” on pensions, but Fidelity’s head of pension Richard Parkin said the research strongly suggested this was not the case.

“We’ve always said that suggestions that the Lisa will undermine pension savings are, we think, overdone.

“Encouragingly, the research shows that those who are involved in company pensions do value them and will stick with their scheme even when Lisas are launched,” he said.

“The idea that people will opt out of pensions to save for house purchase in a Lisa seem to confuse cause and effect.

“Those who are determined to buy their own home but can’t afford to do that and contribute to their workplace pension will surely opt out of the pension in any case – as our results show.”

He added opting for a Lisa over a workplace pension was a poor decision, claiming that, taken together, the employment contribution and the tax breaks on pensions would add up to 70 per cent return on a net contribution.

He said the Lisa would only return 25 per cent.

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 auto-enrolment.

“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