- The Lifetime ISA (LISA) should be ‘supercharged’ to make the product more attractive to self-employed savers
- AJ Bell urges Government to ditch LISA age restrictions and ditch exit penalty in response to Work & Pensions Committee ‘saving for later life’ inquiry (Work and Pensions Committee to examine saving for later life – Committees – UK Parliament)
- Boosting retirement guidance and simplifying pension tax rules could also improve retirement engagement
Tom Selby, head of retirement policy at AJ Bell, comments:
“There is a yawning chasm between the average pension wealth of employed and self-employed workers1 – a trend that will be exacerbated by automatic enrolment.
“Failure to address this as a matter of urgency risks creating a pensions apartheid between those who are employed and benefit from auto-enrolment, and the millions who are self-employed and do not benefit.
“The combination of a 25% upfront bonus and tax-free access from age 60 means the Lifetime ISA (LISA) has the potential to be an ideal retirement saving vehicle for the UK’s army of self-employed workers.
“However, by preventing those aged 40 and over from opening a LISA and applying a 25% charge – effectively a 6.25% exit penalty – to withdrawals before age 60 that aren’t used for a first home, the Government has severely limited its potential.
“Removing the age restrictions and reducing the early withdrawal charge from 25% to 20% – meaning it would simply be returning the upfront Government bonus – would supercharge the LISA and vastly broaden its appeal, particularly to the self-employed.”
Making engagement a priority
“It is also important Government and regulators look beyond auto-enrolment at ways to engage people to save more for retirement themselves.
“A good starting point would be simplifying the tax rules governing pensions and committing to a period of stability, giving people certainty to plan for their future. This would have the added benefit of making it easier for pension providers, advisers and others in the industry to explain the benefits of retirement saving.
“We are asking some people to lock up their money for 30 years or more when saving in a pension, and while there are generous tax benefits, a bit of certainty feels like the least Government should be able to provide.
To facilitate greater engagement, the FCA should work with the industry to explore how providers could give greater guidance, help and support to people making financial decisions.
“This would give everyone in the sector – from providers to employers and charities – more confidence to help people make sensible decisions, both when saving for retirement and turning their pension into an income.”