The FCA has extended the risk warnings associated with the Lifetime Isa (Lisa) to highlight the potential pitfalls of missing out on company pension benefits.
The regulator has issued its final policy statement before April’s launch of the product following on from its consultation paper, CP16/32, issued in November.
The report stated the following specific risks should be added to those outlined in the initial paper:
1. The risk that investors may also lose out on employer’s pension contributions where they have a personal pension and there is an employer matching contribution structure in place.
2. The risk that investors may not consider the impact of taking out a Lisa on means-tested state benefits as opposed to saving in a pension.
Jon Greer, pensions expert at Old Mutual Wealth, said these warnings highlight the complexities involved in assessing the Lisa’s merits. However, Mr Greer added that since neither guidance nor advice is required in order to purchase the product, people may not appreciate the full impact of choosing a Lisa instead of a pension.
He said: “A risk label can only do so much, and in general people don’t tend to read the small print, especially if they are already convinced their decision is the right one.”
This move followed shortly after significant activity since the start of the year.
Between January and March, One Family, Scottish Friendly and The Share Centre all declared intentions to launch the Lisa, offering competition to the only previously confirmed firm, Hargreaves Lansdown.
Despite the product having the facility to provide for a house purchase or retirement, Mr Greer is sceptical as to whether the latter will feature highly in investor’s minds.
He said: “A pension is a better deal for the vast majority of people, and we hope the Lisa does not detract from the successful auto-enrolment initiative, where employer contributions can prove to be extremely valuable.”
The FCA’s report also warned that savers may misunderstand the Lisa’s 25 per cent exit penalty, and “may wrongly believe” that the charge would be equivalent to simply giving up the 25 per cent government bonus.
Research conducted by polling firm YouGov for Zurich, meanwhile, has found that only one in five adults were aware of the 2016 Budget announcements of the Lifetime Isa, the fuel duty freeze, or the planned increase to annual Isa limits.
craig.rickman@ft.com
