ISAs  

Good riddance to 'riddled with risks' Lisa

Good riddance to 'riddled with risks' Lisa

The IFA community has applauded calls by MPs on the Treasury select committee to abolish the Lifetime Isa (Lisa).

Advisers said they were not particularly fond of the Lisa, which was introduced in April last year, to help younger savers set aside money for their pensions or a house purchase.

In a report out this morning (26 July) the MPs had labelled the product as too complex and not popular enough among savers to keep. It appeared advisers agreed with this view.

The Lisa allows those aged between 18 and 39 to save up to £4,000 each tax year and receive a government bonus of 25 per cent of the contribution if they use the product for their retirement or to buy their first home.

But chartered financial planner at Yellowtail Financial Planning, Dennis Hall, said he did not ‘rate’ the Lisa as a viable pension alternative, although he saw some merits in it as a short-term savings product.

He said: "As a pension alternative I didn’t rate it, but as a short-term savings vehicle for someone saving for a house deposit, what wasn’t to like about it.

" Invest £4000 and get £1000 government top up – perfect for the under 40 person with a specific house purchase saving target in mind."

He said the problem was that the product was rarely offered as a savings account, with many providers choosing to offer it as investment linked accounts, which was not ideal for short-term saving.

"The product tried to be more than one thing," he said.

A similar sentiment was echoed by Alan Chan, director and chartered financial planner for London-based IFS Wealth & Pensions, who said: "I was never convinced we needed a product like this in the first place and so it should be abolished.

"It was always feared that it could be damaging to auto-enrolment and unwind its success as young savers start opting-out to save into a Lisa instead.

"I don’t think a replacement product is needed as, in my view, pensions, with auto enrolment at full speed, and Isas already do the job."

Martin Bamford, chartered financial planner at Surrey-based Informed Choice, said he was not surprised to hear the Treasury committee wanted to scrap the Lisa.

He said he didn't think it was particularly popular among savers.

He said: "Without reform to pension tax relief alongside, the Lisa was never going to achieve widespread adoption. It also needed much higher annual investment limits and a greater number of product providers making them available.

"Introducing new products for different age groups, with different goals, is politically driven and far less effective than simply upping the level of Isa limits for everyone."

Ros Altmann, former pensions minister, had previously warned the Lisa was not even close to being as beneficial as a pension post retirement freedoms.

Baroness Altmann even went as far as saying it was a 'disaster in the making'.