The director of policy at Royal London and former coalition government pensions minister said the Lifetime Isa “was a horrible hybrid”.
He said: “It is sort of a pension and sort of an Isa – it is both and it is neither.”
Reflecting on what the government should do to boost savings pots, Mr Webb told delegates at FTAdviser’s Retirement Freedoms Forum today (4 October) that the American ethos of “saving more tomorrow” could be exported to the UK.
He said: “The Americans encourage people to save more tomorrow by forgoing any salary rises and instead putting that increase into a pension.
“There has to be a law that means unless you opt out every time you get a pay rise it goes up by increments, from 8 per cent to 8.5 per cent, then up to 9 per cent. And so on.
“The best time to save is when you never have it. You will never miss it. And when you move jobs your P60 tells your new employer what percentage of your salary you pay into your pension.”
Mr Webb, who was the keynote speaker at FTAdviser’s Chepstow event, warned unless something was done people were “not going to be able to afford to retire”.
He said: “People will need to start saving at 22 and they need to be incentivised to save.”
The former pensions minister also slammed the government for ‘demoting pensions’.
He said by ‘only’ having a junior minister responsible for taking forward the portfolio the Treasury would not take the issue of pensions seriously.
He said promoting the idea of the Lifetime Isa had shown that there was a battle between “whether pensions are simply a long term savings product or something special.”
Speaking to a packed room of financial advisers this morning (4 October), Mr Webb said: “You only have to look at what has happened to Isa limits, which have increased while the lifetime allowance has gone down.”
His comments came after his successor, Baroness Ros Altmann warned the Lifetime Isa isn’t even close to being as beneficial as a pension post retirement freedoms.
Speaking at last week’s FTAdviser Retirement Freedoms Forum in London, Baroness Altmann said: “In my view Lifetime Isas risk poorer pensioners in the future and it is a disaster in the making.
“This product has mis-selling written all over it. Just think about it from a customer’s perspective. The Lifetime Isa isn’t a simple product. It needs somebody to understand the whole environment.
“It is not simple. It is not a pension. This [loss of the 25 per cent bonus and 5 per cent] penalty on withdrawal is punitive. I just cannot for the life of me see how you can justify that when I worked so hard, for so long, to get the cap on pension exit charges down to 1 per cent.
“I am not surprised that so many providers are saying they don’t want to bother with this thing, not just because they don’t know all the details but because it is fundamentally – as a pension - not a good product.”
