In a submission to the House of Commons Work & Pensions Committee, Royal London has called for action to ensure that Automatic Enrolment into workplace pensions is not undermined by the new Lifetime ISA.
The company’s key recommendations are:
- A requirement for the under 40s to have access to impartial guidance before making choices about workplace pensions and Lifetime ISAs; and
- A requirement that the under 40s take full advantage of the employer contribution associated with a pension before considering a Lifetime ISA.
Jamie Clark, business development manager at Royal London, said: “The process of automatically enrolling employees into a workplace pension has been an undoubted success. But the introduction of a “Lifetime ISA” in 2017 which will have the dual aim of helping people to save for the deposit on a first home and to save to for retirement there is a real risk that younger savers will be diverted away from the workplace pension and into a Lifetime ISA.
“The Lifetime ISA, with a generous government bonus of 25% (at least on the first £4,000 of savings each year) makes the decision to save for a home or a pension, described by the Chancellor himself as “agonising”, all the more difficult. We are concerned that young savers, who are unlikely to have a lot of money to spare, will opt out of their workplace pension and choose to maximise their contributions to the new Lifetime ISA instead.
“We are calling for clear guidance to be made available to young workers so that they have a source of impartial information on the potential consequences of choosing Lifetime ISA over workplace pension. The government is currently consulting on a new ‘Pensions Guidance Body’. It is now as important that guidance on pensions is available to people at the beginning of their working lives as it is when they are approaching retirement.
“Equally, to protect the thriving workplace pensions market, government must make it clear that employees should take full advantage of the valuable employer contribution into a workplace scheme before they consider the Lifetime ISA.”