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UK workers twice as likely to choose Lifetime ISA over a pension

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Twice as many workers look set to save into the Lifetime ISA compared to a workplace pension, new analysis has found.

MPs are concerned that if savers flock to the Lisa, there will be an increase in opt outs from the national scheme that has seen over six million people automatically enrolled into a workplace pension.
 
Due to launch next April, the Lisa will give people the chance to save up to GBP4,000 each year and receive a 25 per cent government top-up. The funds can grow and be withdrawn tax free to go towards a first home purchase or for retirement.

The national poll of 2,000 employees shows that: 30 per cent of those aged 25-40 would choose a Lisa compared to 15 per cent who would opt for a pension; 64 per cent of 18-24 year olds would use their Lisa to help buy a first home; 58 per cent of 25-34 year olds would use their Lisa for retirement savings; and employees who are higher up the income scale are twice as likely to save into both a pension and a Lisa compared to those at the other end. 
 
But unlike workplace pensions, current plans mean employers will be unable to pay into their workers’ Lisa. This has led to fears that savers who prefer the Lisa’s flexibility could be disadvantaged by missing out on around GBP20,000 worth of employer contributions.  
 
Investment firm True Potential, which carried out the research and fought a four-year campaign for the enhanced ISA, says the Lisa must be included alongside pensions in workplace schemes to avoid an increase in opt outs.
 
The Lisa builds on the popularity of ISAs, with official figures showing that on average savers contributed GBP6,064 to ISAs in 2014/15 compared to GBP2,840 for personal pensions.
 
David Harrison, Managing Partner at True Potential, says: “The Government is caught between a rock and a hard place now because the Lifetime ISA is sure to be popular, but they have rolled out a national pension scheme. Few people will be able to afford to save into both, so in reality there will be a choice. Given ISAs’ popularity and the added bonus of a 25 per cent top-up, MPs are right to be concerned about pension opt outs.
 
“The only reason that pensions may outperform the Lisa is because employers can contribute to a pension. The solution is not to stymie the Lisa, but to open it up to employer contributions as well and give savers the best of both worlds. It is time to think of automatic enrolment as national savings not a national pension scheme.  
 
“If employers could contribute to Lisa savings, we’d have a level playing field and people could choose the best product for them. That is the way to avoid a surge in workplace scheme opt outs and it avoids the Lisa becoming a complementary product used mainly by the better off.”

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