PensionsNov 21 2018

Savers sticking with pensions despite Lisa

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Savers sticking with pensions despite Lisa

Few investors are opting out of their workplace pension because of the Lifetime Isa, according to a survey by AJ Bell.

In a survey of 400 of AJ Bell's Lifetime Isa (Lisa) customers found some 56 per cent were using the product for retirement, while 32 per cent were saving for their first home.

But the company said exit fees and penalties were providing a headache for savers.

AJ Bell said 166,000 accounts were opened in the product’s first year, which it said was a "promising" start given its relatively recent arrival on the savings scene and just a small number of providers were offering it. 

Initial fears the Lisa could cause a surge in auto-enrolment opt-outs appear to have been misplaced, with 78 per cent saying they were saving in the product alongside their workplace pension.

Tom Selby, senior analyst at AJ Bell, said: "Rather than sowing the seeds of auto-enrolment’s demise, the Lisa is providing a valuable savings option alongside the flagship reforms."

Just 3 per cent of those who responded to the survey who were not saving in a workplace pension said they had opted-out to fund their Lisa.

"The fact so many people are making an active decision to save in a Lisa over-and-above the auto-enrolment minimum is hugely encouraging and makes a mockery of calls made in some quarters to scrap the product altogether," Mr Selby said.

More than nine in 10 of those surveyed said they were aware of the £4,000 annual contribution limit and the 25 per cent bonus.

But the survey highlighted confusion about the exit penalty, with one in five unable to explain how the 25 per cent charge worked.

Mr Selby said almost two years on since its launch, it was a good time to revisit the mechanics of the product.

He said: "Scrapping the exit penalty would be a sensible place to start. At the very least the exit penalty should be reduced to 20% so that it equals the value the government bonus adds to contributions and covers investment growth achieved on the bonus.”

Laith Khalaf, senior analyst at Hargreaves Lansdown, said: "The Lifetime Isa gives younger savers a leg up to save for a home purchase, or for retirement, both of which are arduous mountains to climb thanks to rising house prices, longer life expectancy, and higher ages for the state pension."

He added that the product had been "dogged by naysayers but for the tens of thousands of people who have opened one it’s proved a useful part of their savings tool kit".