Ex-pensions minister Baroness Ros Altmann has told FTAdviser the Lifetime Isa has “damaging behavioural incentives” and that the product needs to be rethought.
After stepping down from the role of pensions minister on Friday (15 July) amid a government reshuffle, she branded the Lisa, due to be introduced in April 2017, “the worst type of pension policymaking”.
Ms Altmann also revealed a split on the policy between the HM Treasury, which she said disagreed with her views, and the Department for Work & Pensions, which she said supported her opinion on the matter.
“They [DWP] don’t want to publicly disagree with Treasury, and the new parliamentary under secretary for pensions doesn’t have detailed knowledge, so Treasury may hold sway; which would be terrible for the long term.”
She told FTAdviser the Lifetime Isa “poses dangers to pensions as currently proposed” and while for house purchase it may have some merit in subsidising younger generations, it does not make much sense as a pension and “has damaging behavioural incentives”.
Baroness Altmann predicted those who put money into the Lisa will often be wealthy parents contributing on behalf of younger offspring who “don’t really need the billions of pounds of taxpayer incentive”.
She argued the Isa structure will encourage those who choose to opt out of workplace pensions to spend money before their older age, pointing out that if it is tax free at 60 they will have incentives to take it all out as soon as they can.
“That means future governments having to support millions more poorer pensioners who received billions of pounds from today’s taxpayers, which gave them tax free money to spend at age 60. So the Lifetime Isa just won’t last a lifetime; we need a lifetime pension.”
A government spokesperson said on the topic of the Lifetime Isa: “We are committed to creating a nation of savers. Our new Lifetime Isa will give people greater freedom and choice to save flexibly for the long term in a way that works for them.”
Late last month, a senior policy adviser at HM Revenue & Customs said Britain’s shock decision to leave the European Union will have no impact on the government’s plan to introduce the Lifetime Isa next April.
Paul Cottis reassured the industry that Brexit would not derail the new Isa, saying the regulatory framework was on track to be announced in “early autumn”.
Also in June this year, Aegon’s head of pensions said employers must be banned from contributing to employees’ Lisas to prevent the new savings wrapper from undermining auto-enrolment.
Mike Pendergast, an independent financial adviser with Cheshire-based Zen Financial Services, called the Lisa “a gimmick to placate the millions of young people who can’t get on the property ladder as salaries and income have not risen with house prices”.
Alan Chan, director and chartered financial planner at London-based IFS Wealth and Pensions, said he did not agree there should be a lifetime pension as this would effectively be going backwards.
He said: “The pensions industry has taken big steps in the right direction with auto-enrolment and pensions freedoms being the real driving forces behind it.
“I think the next step would be to make workplace pensions compulsory and not to allow people to ‘opt out’ which would reduce the burden on the taxpayer for pensioners.”
ruth.gillbe@ft.com
