Industry experts give their views on the future of pensions in light of the introduction of LISA
“It’s definitely the case the LISA will cause house prices rises – people will feel they’re now able to offer a bit more money to buy properties. What I think is less clear however, is whether it will actually change pension saving rates. For me, the key is what the default stays at – which is auto-enrolment, with set employer contributions. While some will opt-out of a pension, I believe most people will stay in and save into a LISA on top of that. LISAs don’t have to be a threat to pension savings. Where there could be some ambiguity is if employers start diverting pay into a LISA-type product on their employees behalf, by offering this as a perk. There are rules about offering inducements to opt-out of pensions.”
David Robbins, senior consultant, Towers Watson
“While we support any initiative that boosts the savings rate (and a range of different vehicles to encourage this), we do have concerns. Pensions were invented for a good reason. They are absolutely essential to provide income when employment ends. The discipline provided by restrictions keeps pension saving focused on this outcome. There is the risk of an unintended consequence in encouraging younger people to focus more on the shorter-term saving for which the LISA appears suited. Automatic enrolment, with the benefit of employer contributions, has been very successful in encouraging pension saving. It would not be desirable to see younger people go down an either/or route and neglect AE to concentrate on a LISA.”
Kevin LeGrand, president, Pensions Management Institute
“This one is quite hard to call. I think the answer is it ‘could’. For many young people their priority is saving for a house and getting a start in life, and the government ‘bonus’ savers get with a LISA is attractive. But what we don’t yet know is how much extra money people suddenly feel they’ll have to save into it. It’s clear most employees won’t have the maximum of £4,000 a year, so the temptation might be bolster what they do have by opting out from their pension and using this money. What employers need to do is sell the benefits of their contribution to pensions. This is by far the most valuable part, and over time should be worth more than the LISA – which can only be added to by people on their own for a maximum of ten years.
Kate Smith, head of pensions, Aegon