ECONOMIC OUTLOOK | Pensions
In general, if you are employed you should
pay into your employer’s scheme as your
employer has to contribute as well, so if
you substitute it with a LISA you will lose
your employer’s contributions.
If you are self-employed and a higher
rate taxpayer you would be best advised
to pay into pensions as the tax benefits are
considerably higher, with a self-employed
basic rate tax payer however, the differences
are minimal and it would come down to a
matter of choice as to which benefits best
suit your personal circumstances.
On the face of it the LISA looks like a
clever and innovative product, however
when you delve down into the nuts and
bolts of the scheme, it is not without its
critics. The main areas of concern are the
hefty 25% exit charge if you require your
savings before age 60 or if you are not
buying your first home. One investment
house has calculated that the exit charge
could mean an investor losing around
45% of the growth in the value of the LISA,
assuming he or she had it for 10 years, and
it were to grow by 4% a year. The general
professional opinion seems to echo that
of Tom Selby, an analyst with A.J. Bell,
40
DIRECTOR OF FINANCE
who said: “It is disappointing to see the
government pushing ahead with an exit
fee that looks overly punitive if people
unexpectedly need access to their savings.”
Other main concerns are that the LISA
is masquerading as a pension and will
confuse workers who may opt out of
much better workplace pensions. The
strong message here is that the Chancellor
should beware the dangers of trying to
encourage people to use a so-called LISA
as a retirement savings product.
The majority of the criticism
surrounding the LISA is its complexity.
There is no doubt that the Individual
Savings Account (ISA) family has been
an overwhelming success, encouraging
millions of people from all walks of life to
save and utilise the various tax advantages
offered to them. As a financial adviser I
believe this success is in a large part due to
the simplicity of the products to date as, in
my experience, as soon as something gets
too complex, the average investor simply
switches off, never to return.
My major concern over the new LISA
however, and no doubt it will also be a
major concern to the government, is the
lack of providers that will be ready to
launch in April. At present only Hargreaves
Lansdown and A.J. Bell have said that
they have an offering ready for the April
launch date. A number of companies
such as HSBC and Lloyds have delayed
their decision, stating that this is due
to the lack of information from HMRC
and the Treasury. Standard Life has also
confirmed that it will not launch in April,
a spokesman for the company saying that
they require further engagement with the
FCA on how the product will be regulated
before they launch. Nationwide, a major
savings provider, has simply confirmed
that it will not be offering a LISA product.
So will “LISA with an S” be as successful
as “LIZA with a Z?” I think in the long term
it will be, but it will need to be simplified
and to evolve. If that happens I believe we
could be witnessing a complete change
in the saving and investment habits for all
in the UK, which is no bad thing when you
look at where we are now. Q
Tony Lloyd is owner, Lloyd O’Sullivan
Financial Services:
www.lloydosullivan.co.uk
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