What is needed from the Lisa regulation consultation

Consultation runs through to January 25, and a policy statement, with final rules and guidance, will be published sometime in March.

While the measures being proposed by the FCA are practical and provide a solid footing on which to build, there are pieces of the framework we believe should be strengthened.   

The consultation paper outlines the approach to promotion and distribution of the Lisa with consumer protection very much in mind.

The FCA is proposing regulation in the spirit of the wider Isa family, albeit with additional protections to reflect Lisa’s specific features.

Many of the obligations will fall on the shoulders of the product providers, who will be required to issue risk warnings at the point of sale. This ensures individuals can make informed decisions and be aware of the implications of certain actions, or even inaction.

There will be a specific focus on the conditions of the early withdrawal charge (which appears to be here to stay) and, importantly, the implications of opting out of a workplace pension in favour of a Lisa.

While our research found that the vast majority of individuals will continue to prioritise a pension, we think the consequences of losing out on valuable employer contributions needs to be made clear to savers.

Clarity of purpose

Many of the issues can be tackled through effective and meaningful communication. While much of the regulatory attention will be focused on the Lisa provider, we believe employers are uniquely placed to play their part through effective communication in the workplace.

Ongoing education and guidance around employees’ savings options will help protect everyone. Likewise, the government also has a part to play and we would like to see a campaign that reinforces Lisa risk warnings and provides clear messaging, in the spirit of what we’ve seen for auto enrolment.  

Whatever the approach, it’s important that it’s easy to understand, meaningful, relevant, appropriately presented and linked to the purpose and benefits of savings.

What it mustn’t be is a technical rundown of the product features – it’s important that we move away from a 'regulatory disclosures' approach, recognising that information alone is not sufficient to empower individuals.

Notwithstanding some of the distinctions and complexities Lisa brings, there is a real danger that making it complex and onerous will damage the Isa brand and engagement, causing further damage to an already inadequate savings culture.

The idea of mandatory financial advice, which some commentators described as a necessity, looks unlikely, and understandably so.

The FCA consultation document makes no mention of advice, which is no real surprise given the perception and assumed value many have of it. Compelling individuals to take advice prior to establishing a Lisa could create a barrier and fundamentally undermine its success.

The Lisa could be subject to similar requirements to workplace pensions, such as a charge cap and ongoing diligence, ensuring value for individuals. This approach absolutely makes sense, as does offering them in the workplace, which would afford a higher level of governance and support for individuals than they would have by striking out on their own, and there’s potential for lower pricing.

It can also enable employees to make more effective savings decisions by joining up the various corporate sponsored reward and savings options that are offered.

Given the timescales involved and government focus on an April launch, it’s unlikely we’ll see fundamental change when the FCA issue final rules in March.

Whatever the outcome, we expect regulation and guidance in this space to continually evolve as experience of how consumers and product providers behave develops.

Sharon Bellingham is senior consultant at Hymans Robertson