From April 2017 anyone under the age of 40 will be able to open a Lifetime ISA (LISA) and save up to £4,000 each year, in a scheme to help young people start building a pension pot or saving for a home. Many employers are now wondering what the LISA will mean for their workplace pension schemes.
During his Budget speech chancellor George Osborne said young people find pensions too complicated and inflexible, but that they are attracted to the simplicity of ISAs.
He added that under the current system most young people face an “agonising choice” of either saving to buy a home or saving for their retirement.
“For those under 40, many of whom haven’t had such a good deal from the pension system, I am introducing a completely new flexible way for the next generation to save,” he said. “Young people can put money in, get a government bonus, and use it either to buy their first home or save for their retirement.”
Unlike a pension, money saved in a LISA will be accessible at any time, without the bonus and with a charge. The government will consult with the pensions industry on whether savers will be able to return money to the account to reclaim the bonus, a system Osborne described as “both generous and completely flexible".
Roger Fairhead, director of group compensation and benefits at SABMiller, told HR magazine this is a positive development, but he expects further change. “I’m pleased about this announcement, as anything that provides employees with a vehicle to save has to be a good thing,” he said. “However, it is naive to think that the legislation on pensions will not change over the next few years.
“I predict there will be further alterations to pensions legislation next year, so the landscape will change once again.”
Graham Vidler, director of external affairs for the Pensions And Lifetime Saving Association (PLSA), told HR magazine that the LISA will likely complement workplace pensions. “For some people it will be a useful way to build up a pension pot,” he said. “Particularly the self-employed, who don’t yet benefit from auto-enrolment.”
However, both Vidler and Fairhead expressed concerns about the repeated changes to pensions legislation. Vidler said it is difficult to make predictions about the future of workplace pensions before the LISA is up and running, while Fairhead was concerned that yet more pensions changes could put people off saving even further.
“Constant short-term changes do not encourage employees to put money away for the long term,” added Fairhead.