8th August 2016
Houston, I think we have a problem…. The introduction of the Lifetime Isa could make it a difficult mission for AE.
With all the back slapping and thumbs up for Auto Enrolment you’d think that there would be nothing to worry about in terms of the pension provision for the young people of today.
‘Educating’ them into pensions through Auto Enrolment seems to have been a lifesaver for the pensions industry, but new research suggests that they remain unconvinced.
The Government’s new Lifetime Isa (LISA) is due to be introduced next year. The new scheme will allow £4000 to be saved by 18 to 40 year olds, with the Government adding a bonus of 25%. A YouGov poll of 1018 people, commissioned by Zurich Insurance, indicated that nearly half of those surveyed would choose this over pension contributions, and one in ten taking the pot before retirement.
Ouch! Workie will be losing sleep over this one.
In March this year the Work and Pensions Committee considered new evidence on whether the LISA could undermine workplace pensions. There’s no doubt that pensions through employers (on paper) are still the best vehicle for long term saving, especially if the employer also contributes. But here’s the rub. On presenting the new Lifetime ISA The Treasury issued a flyer with details of how it would sees to attract young savers on two fronts. The first is saving for a new home. No problem there. Your savings and the bonus can be used towards a deposit on a first home worth up to £450,000 across the country. However, the product also quite clearly sets out to capture those saving for retirement , giving access after your 60th birthday (and therefore before normal retirement age) tax-free, and also allowing savers to withdraw the money at any time before 60, sacrificing the government bonus. This sets the Lifetime ISA as a real threat to auto enrolment.
The Government, Workie, and the Pensions industry need now to convince employees that AE is the right course for them. It’s a hearts and minds thing. It will be interesting to see if the trend for ‘opting out of auto enrolment’ rises when the new Lifetime ISA product is launched in 2017, and whether analysis shows a weakening in the 18-40 year old category.
Furthermore, hard pressed SMEs struggling to afford pension contributions could see Lifetime ISAs as a welcome distraction from auto enrolment, and may even promote it to help balance their books.
Will AE crash and burn? Maybe not. But it could be difficult times ahead for Auto Enrolment.
