Pension provider Zurich has warned that the Lifetime Isa must not pave the way for regressive pension reforms.
The Lisa is due to become available in April to allow those aged between 18 and 40 to save towards their retirement or a home with the help of a 25 per cent government bonus.
Zurich's director of operational taxes for Zurich UK Life, Iain Mills, said as the government presses ahead with legislation for the Lifetime Isa, any move to replace pensions with Workplace Isas could "profoundly damage" auto-enrolment, which has been successful in engaging millions of people to save into a pension for the first time.
Mr Mills said: “It is critical that the Lifetime Isa does not become a stepping stone to Workplace Isas.
”This would derail auto-enrolment and reverse its early success in encouraging large numbers of people to save into a pension for the first time."
He added employers currently paying into a pension receive tax relief on National Insurance Contributions which would vanish under a Workplace Isa.
“This could result in many employers cutting the amount that they are willing to pay into employee pensions, eroding the incentive for workers to save into a scheme.
“A double whammy of falling employer contributions and employee payments could seriously undermine the future of auto-enrolment, and leave a generation of savers facing financial uncertainty in retirement.”
Mr Mills said a “fairer” flat rate of pension tax relief could instead increase saving among low earners, as he said this would reward people who do the right thing by saving for a a retirement.
“It would incentivise saving among workers on lower incomes, while ensuring pensions remain an attractive investment for higher earners.
“Coupled with auto-enrolment, this would give a powerful boost to the pensions of millions of workers and help the vast majority of people to save more for retirement. It would also end the complexity of the current regime and set tax relief at a sustainable level for the long-term.”
In addition, Mr Mills has also called for the government to remove the Lifetime Allowance.
“The lifetime allowance forces people to stunt their own savings and penalises those on middle incomes who have saved hard or invested wisely.
“For savers close to retirement who expect to live for another 30 years, a pot of £1m would only effectively result in a pension of £25,000 a year once the maximum tax free cash has been taken. The government should consider removing the arbitrary lifetime cap and reducing the annual allowance instead."
In this year's Budget, the projected cost to the exchequer for the Lisa for 2017 to 2018 was £170m and for 2018 to 2019 was £330m.
But earlier this month, Richard Parkin, head of retirement at Fidelity International, said the uptake of the Lisa by those under the age of 40 will be higher than the government has predicted.
On 12 October, Hargreaves Lansdown offered some advice to chancellor Philip Hammond, proposing pension and Isa simplification to be included in next month's Autumn Statement.
According to the firm, which wrote to HM Treasury, consumers could be helped to save and invest for their future if the government simplifies the rules for Isas and pensions, as well as targeting its top ups more effectively.
At the same time, speculation that HM Treasury is reviewing linking pension tax relief to age met with a mixed response from the industry.
Mr Mills said: "We are supportive of incentives that encourage young people to save. However, this proposal would add greater complexity to the system, leading to further confusion among savers and would be difficult to build and administer.
"From the details released so far, there may also be questions about its fairness in situations where a younger person on a high salary could benefit more than an older person on a low one.”
Robert Lewis, director of operations at Flintshire-based Heritage Financial Solutions, said: "Auto-enrolment is very important in helping the UK become pension savers. I hope Lifetime Isas do not mess with this agenda."
