The new LISA should be flexible to suit both pension and home savers
The new Lifetime ISA (LISA) has received mixed reviews from the pensions industry. Some have said it will undermine retirement savings and may even cause an increase in auto-enrolment opt-outs. Meanwhile, supporters have said that it will encourage younger workers to engage with their finances and focus on creating a stable future.
The LISA has been created as a savings vehicle that will enable individuals to save for either retirement or for a deposit on a first home: with the government matching £1 for every £4 deposited by the employee up to a maximum of £4000 [in saver contributions] per year. If it remains intact until the age of 55, there are no tax restrictions on cash withdrawal.
However, LISA has a blurred boundary between detractors and supporters: pension and retirement solutions provider Aegon has pointed out that undecided savers might not have the flexibility they require via the Lifetime ISA.
With saving for retirement and saving for a deposit requiring wildly different approaches to long-term and short-term investment choices respectively, it is difficult to find an investment solution that suits those savers who have not yet decided what their primary purpose in saving is.
Aegon has suggested that offering flexible investment solutions with a degree of guarantee is the most favourable approach to helping this undecided group to save appropriately.
Steven Cameron, pensions director at Aegon says: “The Chancellor has suggested individuals can use their LISA to save for both retirement and a first house deposit. But the same pot of money can’t finance both and those who are aiming to leave their options open will face real challenges in trying to choose an appropriate fund. Investing in equities for a mortgage deposit creates volatility risks while saving long term in cash for retirement is equally inappropriate.
“For undecided savers, a solution allowing some equity investment coupled with some form of guarantee could be the answer. If further down the line the decision is taken that the funds are for retirement, they can always revisit their fund choice accordingly.
“We’re keen that the Treasury allows for this form of innovation as it finalises the detail of the Lifetime ISA design.”