The Pensions Management Institute's Tim Middleton questions the Lifetime Isa's real purpose and asks what effect it will have on society.
While the concept is hardly new – Michael Johnson of the Centre for Policy Studies first promoted his ‘flexible retirement savings account’ seven years ago – the Lisa does set precedents in the UK’s approach to saving for retirement.
The Lisa is supposed to work alongside pension saving, but this is only likely to be an option for the more affluent, who are less likely to need support in buying their first property anyway. In the majority of cases, the Lisa will not complement the workplace pension scheme but compete with it.
The other concern about the Lisa is that it presents a back door introduction to pension tax relief changes
The recent example of the Oxleas NHS Trust demonstrates that some people are likely to value the short-term benefit of cash over the longer-term security that a pension offers.
Younger people could be less attracted to tying up their savings in a pension vehicle – with employer contributions and valuable tax relief – in pursuit of more readily accessible cash, and many of the excellent achievements of automatic enrolment would therefore be lost.
Back door to tax changes
The other concern about the Lisa is that it presents a back door introduction to pension tax relief changes.
Much was made of the chancellor’s decision to shelve the introduction of a taxed, taxed, exempt pensions tax regime.
However, many commentators argue that this was essentially a political decision and that the idea is to be revisited after the European Union referendum.
The end of pensions?
Others are concerned that the longer-term objective is to replace traditional pension schemes altogether.
It should be noted that the Lisa is ultimately a retirement benefit, as proceeds are only available tax free from age 60.
Many suspect that its introduction is a first step towards the replacement of traditional pension schemes with a system of Isa-type products.
This appears to be the view of the CPS; its economic briefing for March claimed that the Lisa has "effectively replaced personal pensions for the under-40s".
In a previous Talking Head column, I cautioned against the drift away from lifetime income streams – pensions – towards a growing trend for lump sum retirement benefits and questioned if the breakdown of the UK’s established pensions culture would best serve the longer-term interests of society as a whole.
It would be rash to predict the consequences for retirement saving of the Lisa's advent.
If it proves to play an important part in helping younger people make their first step on the housing ladder, it will have had a beneficial impact.
However, we must also consider the potential consequences for retirement planning. It could be the case that in place of a nest egg, the Lisa proves to be a cuckoo.
Tim Middleton is technical consultant at the Pensions Management Institute
