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LIFETIME ISA THREAT TO PENSION FREEDOM SUCCESS

  • Nearly one in three under-40s will cut back on pensions for LISAs
  • Around seven out of 10 advisers fear LISA launch will limit pension saving 

Nearly one in three under-40s will cut back on pension saving in favour of the new Lifetime ISAs which launched last month, new research* from MetLife shows.

Around 23% of under-40s say they will reduce the amount they invest in their pension while another 9% will leave their workplace pension scheme to concentrate on Lifetime ISAs which risks the success of pension freedom.

The nationwide study among savers confirms the view of specialist retirement advisers questioned by MetLife** – 69% of advisers are concerned that the launch of LISAs will deter younger savers from investing in pensions potentially creating a two-tier system for retirement planning.

A limited number of providers have launched LISAs which enable anyone aged between 18 and 40 to save up to £4,000 a year tax-free with the Government paying a 25% bonus up to a maximum of £32,000. The money can be used for house deposits or kept until age 60 and used as a pension substitute.

MetLife’s research shows around 38% of under-40s will consider investing in LISAs highlighting their growing appeal and the potential risk to retirement saving although more than one in five (21%) of under-40s admit they have not heard of the new savings plan.

Simon Massey, Wealth Management Director at MetLife UK said: “The Lifetime ISA is designed to help people save for house deposits and is an advance on the Help to Buy ISA, which does not offer the same bonuses and is restricted on the value of house it can be used to buy.

“It is very welcome that the Government is encouraging saving and the Lifetime ISA offers generous bonuses, but it is worrying if people are going to ditch pension saving in favour of LISAs. Pension savings attract tax relief and employers are duty bound to top up contributions.

“People have limited amounts they can afford to save but it should not be a case of giving up on pensions for LISAs. It is important savers get advice on how best to save for retirement as well as building up a deposit.”

The MetLife research found around 39% of under-40s say the launch of LISAs will not have any impact on their long-term saving plans but more than half (56%) admit they find ISA saving options confusing.

MetLife’s Guaranteed ISA comes with an income or capital guarantee enabling savers to benefit from greater certainty over their investments or future income while still having the potential for growth.

Savers benefit from a guaranteed income for life or guaranteed lump sum at the end of a chosen term, regardless of market fluctuations.  Savers also retain access to their funds when they are needed and are provided with a guaranteed death benefit. The initial minimum investment in the Guaranteed ISA is £15,000.