The lifetime Isa launched on Thursday, so why are there not more providers offering the product straight away, and what is the likely uptake when it comes to using the vehicle for retirement saving?
Since the government announced the introduction of this retirement-cum-house deposit savings vehicle, opinions within the pensions industry have been divided.
While some have drawn attention to mis-selling risk, or commented on the potential negative impact it could have on auto-enrolment, others have welcomed the Lisa as a way to make saving attractive to younger people.
It’s clear that there will be strong demand from consumers, so you’d think that having products in place from launch would have been a priority for more providers
Paul Waters, Hymans Robertson
But with a tight deadline and uncertainty over uptake, only a handful of larger companies will be offering the Lisa from April 6, the date of its official launch. These include platform provider Hargreaves Lansdown and Skipton Building Society.
Lisa availability
François Barker, partner at law firm Eversheds Sutherland, said “There are going to be fewer Lisas available than perhaps we might have imagined at the outset”, because the technical rules mean some providers “simply aren’t ready”.
Because the Lisa is only available to the under-40s, it is by definition only open to a smaller population compared with other products, he said. Barker also suggested that concerns around mis-selling risks might have put providers off.
Cost concerns
Paul Waters, head of Guided Outcomes at consultancy Hymans Robertson, said he is “surprised that the large financial institutions haven’t got their act together to have products in place from launch”.
He noted that one reason behind this could be that there is a commercial decision to be made around the upfront costs and potential return from developing and launching a new product.
However, Waters said he expects the number of providers offering a lifetime Isa to increase. For many companies it was not necessarily a priority to have it ready from day one, “but they are planning to have something within this [tax] year, obviously expecting people will use up their allowance over the remaining months of the year”.
Recent Hymans Robertson research has shown that 61 per cent of workers under the age of 40 would open a Lisa, and more than 68 per cent of them would save into a Lisa alongside a pension.
“It’s free money from the government,” said Waters. “It’s clear that there will be strong demand from consumers, so you’d think that having products in place from launch would have been a priority for more providers.”
Prioritising the workplace pension
However, the limited usefulness of the Lisa as a pension savings vehicle could ultimately be a barrier to uptake. “For pension saving, the attraction [of the Lisa] is very limited,” said Nathan Long, senior pension analyst at Hargreaves Lansdown.
While the Lisa is designed to work alongside pension saving, experts have highlighted that this is only likely to apply to wealthy individuals who are less likely to need support in buying their first home.
Long said the first port of call for employees needs to be the workplace pension scheme, as they will benefit from getting employer contributions.
Concerns over Lisa mis-selling remain as consultation closes
The Financial Conduct Authority’s consultation on rules for selling lifetime Isas closed in January, amid continued industry concern that the draft regulation will not do enough to stop inappropriate choice of products.
Similarly, Waters said: “People will continue to prioritise saving into a [workplace] pension, and that’s absolutely the right thing to do” if retirement saving is their main aim.
He said the product will attract a large number of young people looking to get on the housing ladder, but noted that if they do not use it for purchasing a property then they can choose to save it for the long term and it would get them into the habit of saving, he said.
But for Barker, by coming out of pensions into a Lisa instead, savers also face governance and investment issues.
Apart from giving up the employer contribution, “you end up in a product which is designed to do two different things, for which you might need different investment strategies, and that might lead to bad outcomes”, he explained.
In addition, “you won’t have the governance structures that, for example, a trustee board would have around it”, Barker said.
He conceded that the Lisa has a useful place in the range of savings products, "but it won’t be for everybody, and not every provider will have a product”.
