Nearly half of young people to use lifetime Isa to save for retirement
Nearly half of younger Britons will use a the lifetime Isa to save for retirement instead of taking out a pension plan a survey outlined today.
A YouGov poll said that 44 per cent of Britons between the age of 18 and 39 would favour using the government’s new lifetime Isa in order to put money aside for older age. Such a decision would put them on a “collision course” with auto-enrolment.
According to Alistair Wilson of Zurich Insurance, who commissioned the survey, saving this way is not nearly as efficient. “Young people who opt out of auto-enrolment would lose valuable employer contributions, resulting in a substantially lower income in old age,” he said.
Only 14 per cent of respondents said that they would use the lifetime Isa to save for a first home. Wilson highlighted that the lifetime Isa is a “valuable extra option for people who can afford to put more aside for retirement, or those saving for a first home, but it is not a replacement for a pension”.
The lifetime Isa is to be launched in April 2017, allowing 18 to 40 year-olds to save up to £4,000 a year with the government adding a bonus of 25 per cent (i.e. up to £1,000) to the money set aside.
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Withdrawing any money before the age of 60 would lead to bonuses needing to be repaid plus a five per cent repayment charge. But the survey indicated that this would not stop 14 per cent of people from making such a withdrawal. A further 22 per cent responded that they were unsure whether this would deter them from doing so.
“It’s concerning that as many as a third of people could withdraw their long-term savings in a lifetime Isa ahead of retirement, which may leave them without an adequate income in old age.
“The Government must make it clear that for most savers, a pension offered through an employer is still the best investment for retirement. If used as the sole savings vehicle, the lifetime Isa could undermine the UK’s long-term savings culture,” Wilson said.