Pensions  

Lisa snatches youth vote away from workplace pensions

Lisa snatches youth vote away from workplace pensions

More than a third of people under the age of 35 would favour a Lifetime Isa over a workplace pension, even though it would mean giving up the employer contribution, research by Capita has revealed.

The research, released as part of the firm's annual Employee Insight Report, found that 34 per cent of employees aged between 16 and 34 would rather use an Isa to save for retirement than a pension.

The Lifetime Isa, or Lisa, is due to be launched in April 2017. Announced by then-chancellor George Osborne in his 2016 budget, it will give people under the age of 40 the chance to save up to £4,000 a year, plus a 25 per cent government bonus, towards either a first home deposit or their retirement.

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Many experts, including former pensions ministers Ros Altmann and Steve Webb, have criticised the product, saying it will undermine pensions. Yesterday (4 October), Mr Webb called the product a "horrible hybrid".

Capita's survey of 3,006 employees appeared to strengthen fears the product would lure young savers out of workplace pensions.

On top of the 34 per cent who said they would prefer a Lisa to a pension, 60 per cent had a generally positive view of the product, while just 8 per cent had a negative view of it. 

The report also found that a large minority of under-35s (38 per cent) would be willing to give up the employer contribution on their workplace pension if it meant they had more flexible access to their pension to, for example, buy a house.

Forty-two per cent, meanwhile, said they would not be willing to give up the employer contribution in exchange for more flexibility.

In better news for pensions, the survey found trust in pensions had increased. Thirty-nine per cent of respondents said they did not trust pensions, compared to 47 per cent in 2014 and 43 per cent in 2015.

However, 49 per cent found pension terminology "complicated and confusing and a barrier to plan effectively for retirement", while 51 per cent did not know how much they should be realistically saving for retirement.

Fifty-seven per cent said they would happily see further changes to pension rules if it made pensions easier to understand.

Anish Rav, head of DC proposition strategy at Capita Employee Benefits, said: “It’s easy to see how the Lisa could become popular, but it’s crucial that younger employees properly evaluate just what they will be giving up if they do decide to stop saving into their pension to redirect into a Lisa.

“While the research reveals growing trust in the pensions industry, it is also clear employers need to be doing as much as possible to explain and communicate the options their employees have at their disposal,” he said.

james.fernyhough@ft.com