Research provided by Zurich has suggested people who reject workplace pensions in favour of the new Lifetime ISA could see their pension pots shrink by more than a third. The firm’s analysis found that a Lifetime ISA plans which were announced in the March Budget this year could lead to a total savings pot a third smaller than a workplace pension, based on projections in a comparative calculation over 35 years (LISA Pension).
In late March this year, an inquiry into auto-enrolment by the Work Pensions Committee re-opened to consider new evidence on whether the Lifetime ISA could undermine workplace pensions.
Zurich has warned that the Lifetime ISA could encourage savers to opt out of workplace schemes, missing out of tens of thousands of pounds in employer pension contributions.
As April 2017, individuals who are aged under 40 will be able to save up to £4,000 a year into the new Lifetime ISA until they reach the age of 50 and, for every £4 they save, the government will add a £1 top-up.
According to Zurich’s analysis, a basic-rate taxpayer aged 25 who saves £60 per month into the Lifetime ISA could build up a retirement pot of £24,971 by the age of 60. However, if the same individual saves into a pension under auto-enrolment he or she would see their pot to grow to £37,144, according to Zurich, assuming the 3 per cent employer contribution will come into effect from 2019.
Martin Palmer, Zurich’s head of corporate funds propositions, said: “There is a real danger that the Lifetime ISA could derail auto-enrolment and reverse the progress in encouraging people to put money aside for later life. However, other providers found difficult results.
Alan Ritchie, head employer and trustee proposition at Standard Life, said the provider’s research suggested that there is a population in their early 20s who are interested in the Lifetime ISA, but they were not comparing it to a pension.
Sue Lewis, chair of the Financial Services Consumer Panel, said the “increasingly complex” choices faced by consumers “underlines the need for impartial guidance on the available options”.
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