MPs are examining the impact of the new savings vehicle, which was announced at last month’s Budget, and have encouraged opinions and evidence to be submitted by Sunday.
On Wednesday the Work and Pensions Select Committee will hear evidence from Michael Johnson, research fellow at the Centre for Policy Studies.
He wrote a paper about creating a Lifetime ISA two years before the Chancellor announced the policy.
The committee re-opened its inquiry into Auto Enrolment after concerns raised over Lifetime ISAs’ level of compatibility and the impact they could have on opt-out rates.
Stakeholders have expressed fears that the LISA could undermine it and suggested people may also not understand where their money would be better off, or the benefits of employer contributions.
The committee has heard concerns that there may be some potential contradiction between what the Treasury is trying do with the LISA and the auto-enrolment objective of ensuring people have sufficient income in retirement. Saving to buy a home may be more of an immediate priority than accumulating an adequate pension.
In evidence to the committee on 23 March, Huw Evans, director general at the ABI said: "The critical element of all this is that it doesn’t end up encouraging employers to say "choose the LISA instead", and thereby trying to duck out of their contributions. That would obviously run completely contrary to the grain of public policy that’s been agreed on a cross-party basis for the last ten years".
He further noted that if more affluent under-40s take cash from their existing ISA and put it in the LISA to earn the Government contributions, that isn’t necessarily a good use of public money.
In the same evidence session, Joanne Segars, chief executive of the PLSA, told the committee: "We would be quite concerned if people took up the LISA option at the expense of matching contributions into their pension scheme."
Mr Johnson previously said: “With its upfront incentive and ready access to funds, the Lifetime ISA combines within a single savings vehicle some of the attributes of today’s ISAs with those of pensions savings: a savings chameleon. Crucially, the saver, not the industry, will be in control. The tax treatment of pre-60 withdrawals will be ISA-like (bar the 5% penalty), whereas post-60 withdrawals will be tax-free and permit the saver to retain the upfront incentive.
“The Lifetime ISA should provide some competition to the private pensions arena. But, hopefully, this is only the first step towards merging the disparate worlds of pensions saving and saving into a single, coherent framework. Ideally, a Workplace ISA, encompassed in the auto-enrolment legislation, will similarly provide competition to occupational pensions.”
The Centre for Policy Studies said last month: “The Chancellor’s announcement of a Lifetime ISA is widely recognised as being inspired by Michael Johnson’s reports for the Centre for Policy Studies, most obviously his 2014 report, Introducing the Lifetime ISA.
“In this paper, Johnson recommended that the Lifetime ISA should be eligible for a Treasury incentive of £1 for every £2 saved, to provide a ready access to funds for savers. While the Chancellor has been less generous (offering – for now at least – an incentive of £1 for every £4 saved), the terminology and the direction of reform are clearly modelled on Johnson’s proposals.”
- Like this story? Sign up below for our daily newsletter