OpinionNov 16 2016

Altmann's comments on Lisa take the biscuit

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I find it remarkable the conservative forces in this industry are once again circling their wagons around their favourite middle-class tax break rather than recognising the reality, outside of the Baby Boomer generation, that pensions are failing in this country. 

Decades of mis-selling and supposedly ‘once-in-a-generation’ pension reforms that seem to arrive every Parliament - leading to horrific complexity and a system of private saving that doesn't even remotely connect with social security - have resulted in the pensions brand shattered in the eyes of the vast majority of the population. 

No wonder then that the main power users of pensions are the wealthy and well advised who comfortably suck up the vast majority of tax relief on offer.

It’s no surprise that any attempt to undermine this regime would be met with fierce opposition. 

Ms Altman’s critique of the product is decidedly old school and assumes that Lisa would be presented to clients as a standalone option.

And what better way to attack a new alternative to pensions by describing it as having "mis-selling written all over it”? as Ros Altmann did with Lisa. 

For a former pension minister to label a new product, which addresses many of the issues people have with pensions, as something that would be mis-sold is taking the biscuit somewhat. 

The pension brand is incredibly unpopular with customers.  In focus group after focus group I watch customers roll their eyes when they talk about pensions.

Trust in financial services is incredibly hard to establish but trust in pensions has been almost impossible of late.

For the majority of the population, the attraction of tax relief on pensions suffers directly due to locking your money away for decades.

Let’s not forget that the appeal of pensions was so low in society that we had to legislate for the de facto compulsory purchase of pensions by the young with auto-enrolment and the National Employment Savings Trust. 

Listening to the great and the good of politics and the industry wax lyrical about how well compulsory investment in pensions is going increasingly sounds like a religious leader telling the people what’s good for them from a pulpit.

‘If only people really understood the value of pensions like we do they would definitely invest in them.’

It’s that sort of denial that left politicians, not to mention myself, with egg on their face with the Brexit vote. 

The reality is people don't get pensions, they don’t like them, they don't trust them. Forcing them on people is not the answer. Reforming them or, in my view, replacing them entirely is the answer. 

And so we turn to Lisa. Lisa is by no means perfect but it points the way to a more flexible future where long-term investing is more acceptable and no longer just a middle class tax break for the wealthy and well advised. 

Ms Altman’s critique of the product is decidedly old school and assumes that LISA would be presented to clients as a standalone option.

The days of single solutions for investors have long gone, for nearly a decade customers have been presented with product solutions where the wrapper fits around their goals rather than a ‘start with the wrapper’ approach that Altman seems to suggest exists. 

When seen in the context of the main tax-free wrappers available to customers, Lisa makes perfect sense. Right now customers are forced to choose between a ‘simple and full access’ Isa and a ‘complex and lock it away until you are 55 with tax relief’ pension as an investment.

Lisa is the missing link between Isas and pensions.

Now customers have a further choice of an investment with tax relief which is designed for those with the intention of locking it away for a later date but access at an important event or an emergency. This latter point breaks the biggest barrier to save with a pension. 

When these options are presented alongside one another Lisa makes sense. Clients would naturally use all three options. Isas for flexible and accessible savings, Lisa for long-term savings (including retirement) but money that you still want optionality on, and pensions for money they are convinced they won’t need to access early.

When seen alongside one another I suspect the vast majority of clients will select a Lisa over a pension. Why give up the optionality over your capital when you don't need to?

Sure, Lisa can be criticised. Some raise the strawman argument of Lisa being unsuitable because it won’t receive employer contributions.

Well if clients are being churned out of employer schemes into Lisa that would be a clear violation of the principles of treating customer fairly.

But that’s a conduct risk issue not a Lisa issue. Indeed the problem can be solved and many of the issues with auto-enrolment addressed by enabling employers to pay into an employer’s Lisa.

When faced with that choice how many employees would prefer a Lisa scheme over a pension?

But the main issue behind Lisa is really simple: tax relief is restricted to basic rate relief. That’s the main reason behind the gnashing of teeth in the industry over Lisa.

Pensions make far more sense if you are a higher rate taxpayer, but to reiterate, they are really just a middle class tax-break.

No wonder the great and the good of the industry are trying to undermine Lis. No wonder they are throwing words like mis-selling at a contract that does not yet exist whilst turning a blind eye to issues on pensions such as DWP deprivation of capital rules and pension freedom. 

For basic rate taxpayers, Lisa can and should be the contract of choice for long term investments.

Since the slow death of final salary schemes pensions have failed at large with the vast majority of the population. It’s time to reboot long-term savings and try something different. 

Neil Lovatt is sales and marketing director for Scottish Friendly