Lifetime ISA Warning
March 30th, 2017
FCA to extend risk warnings on the lifetime ISA to include information about losing employer contributions on personal pension schemes.
The Lifetime ISA is due to be launched next month. The main design of the product is two-fold.
- To use the money for a first home purchase, or
- To use the money in retirement – after age 60.
However, since it was initially introduced in the 2016 Budget, there has been some industry criticism towards the savings product – particularly regarding its use in retirement.
Earlier in the year, former pensions minister, Ros Altmann, said the product could be mis-sold to many and called for the Financial Conduct Authority (FCA) to require people to take advice regarding the lifetime ISA.
Now, the FCA is extending its risk warnings on the lifetime ISA to include information about losing employer contributions on personal pension schemes.
Last November the FCA issued a consultation paper on the lifetime ISA which said ‘investors should be cautious when considering the lifetime ISA as a savings product’.
The FCA has said that it is changing its handbook to accommodate the arrival of the new savings product. Firms will be required to go further than initially proposed on risk warnings to people interested in using a lifetime ISA as they will be required to warn clients about the loss of employer contributions for personal pensions.
‘We acknowledge there may be circumstances where a retail client is saving into a personal pension plan to which their employer contributes, and that choosing to save into a lifetime ISA in preference to such a scheme might cause that consumer to forfeit employer contributions to that scheme,’ the FCA said.
“Therefore, we have extended our suggested risk warning about the potential loss of employer contributions to include personal pension schemes. In addition, because of the possibility that investors may not consider the impact of taking out a lifetime ISA on means-tested state benefits we have also extended our suggested risk warning to address this point.”
We have previously published a summary table comparing a LISA and a pension which can be found here. However, the choice between a LISA and a pension is an interesting one and one which will no doubt depend on personal circumstances and overall objectives.