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Aegon dubs Lifetime Isa the surprise of 2016

Aegon dubs Lifetime Isa the surprise of 2016

The Lifetime Isa was one of the two big surprises of 2016, according to Aegon pensions director Steven Cameron.

Announced in then-chancellor George Osborne’s final Budget in March, the Lifetime Isa, or Lisa, caused a stir in the pension industry, with many critics warning it would result in people opting out of automatic enrolment.

Despite the criticism, and a change of chancellor, the government has pushed ahead with plans to launch the product in April next year.

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Mr Cameron, a vocal Lisa-sceptic, said: “There had been a great deal of speculation that the then-chancellor George Osborne would push for a pension Isa system of tax relief, which had been resisted by the providers and advisers alike.

“In the end he opted for a product designed to help younger people either save for a first home or for retirement.

“Seen by some as a better version of the Help to Buy Isa and by others as a threat to auto-enrolment if individuals opt out of their workplace pensions and lose employer contributions, the way the FCA regulates this unique product with its diverse investment objectives and controversial exit charge will be key.

“Their proposals for extensive risk warnings look sensible,” he said.

Mr Cameron said the other big surprise of the year was the government’s decision to scrap plans to create a secondary market for annuities.

This policy would have allowed retirees to sell annuities bought before pension freedoms came in, thus extending pension freedoms to this group.

“While the idea was in line with the pension freedoms it posed a wide range of issues around customer protection,” Mr Cameron said.

“The decision to scrap the secondary annuity market by the new chancellor Philip Hammond was both brave and the correct way of protecting many vulnerable customers.”

Reflecting on the progress of pension freedoms over the year, Mr Cameron said drawdown had been “the clear winner with annuity sales slumping”.

“Whether we have a complete picture of the reform’s effects is still unclear and it may be some time before we truly understand how people are adapting to the range of choices they now have.

“In particular there’s a question over how people ensure they have a sustainable income to live on, although the growth of drawdown with guarantees suggest solutions are emerging."

His two other picks for the most important developments of the year were the progress of auto-enrolment – which has seen an additional seven million people become members of a workplace pension – and the progress of the Financial Advice Market Review, which was tasked with plugging the advice gap.

james.fernyhough@ft.com