“When the Lifetime ISA was announced, a lot of people were concerned that the Government was introducing a pensions ISA through the back door, and that it would eventually replace the traditional pension. George Osborne has confirmed this is the case, and that could introduce a lot of confusion with two separate systems, undermine auto-enrolment and increase inequality with one generation receiving final salary schemes and a state pension, and another generation fending for itself.
“Although the Lifetime ISA does have incentives such as, boosting contributions by 25% and allowing that to be used for a house purchase, the current limit of £4,000 a year is almost a quarter of the allowance for cash and shares ISAs, and ten times lower than the annual allowance of a pension.
“What is most worrying about the stated plans for the Lifetime ISA, is that it could be used to replace the state pension. The Government is living in a fantasy world if it believes that reducing the minimum age to six weeks old will mean the state pension is no longer needed. Pensions and ISAs can already be opened for children, and the truth is only the wealthiest people could afford to contribute significant amounts to their own pensions and their children. The state pension is an essential tool for retirement planning and a necessary safety net. Without the state pension individuals are taking a risk with investments and its removal could increase the benefits bill and the amount of administrative work for the government.
“The Government also needs to consider that whereas pensions can’t be accessed before the age of 55, the Lifetime ISA can. It’s true that the bonus money, and the growth on it, will be revoked if withdrawals are made early for any reason other than buying a house, but that’s unlikely to be a strong deterrent if someone needs the money. This means that many people are likely to dip into their Lifetime ISA, reducing their retirement savings.”
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