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'.
Alan Lakey, director of CIExpert and Highclere Financial Services, agreed with the MPs the Isa system was too complex to entice people to save.
He said: "One problem has been the constant change that has taken place - removal of child trust fund, introduction of Junior Isas, adjustment of Isa allowances, introduction of first £1,000 interest being tax-free, introduction of Help to Buy Isa - for most people it is all too confusing and they have to rethink strategies."
Keith Churchouse, director and chartered financial planner at Guildford-based Chapters Financial Limited, echoed this.
He said: "Some argued that the Lisa was doomed from its start in April 2018, noting that it was planned to effectively replace the Help to Buy Isa launched on 1 December 2015.
"This Help to Buy option is coming to an end in just over a years’ time on 30 November 2019. We have received some calls from younger investors confused about the options, and sadly confusion usually creates concern, even fear especially when looking at what to do with their hard earned and scarce cash, which can then lead to inaction."
Other industry experts have also highlighted the poor take-up rates for the Lisa.
Tim Bennett, Partner at Killik & Co, said: "The Lisa has turned out to be something of a niche savings vehicle that, whilst potentially useful in certain specific circumstances, is nonetheless riddled with risks for the unwary.
"It blurs the distinction between buying property and saving for retirement, separate goals that require different savings strategies. It also comes with strict restrictions, in particular around how it is used to buy property, plus stiff penalties for misuse – this is therefore no product for anyone afraid of small print."
However, despite the criticism, some have said the Lisa has actually started to become popular.
Martin Stead, chief executive of Nutmeg, said: "The Lisa has triggered many of our customers to invest for the first time and be motivated to achieve one of their most important lifetime goals – buying their first home."
He said the average timeframe his Lisa customers planned to invest for was 16-years.
"This shows younger people are beginning to plan ahead with their savings. Helping them to do so is imperative and a behaviour that must be encouraged more."
aamina.zafar@ft.com
