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How to make the LISA better

16 August 2017

Scottish Friendly has put forward a 6-point plan to correct the flaws it sees in the Lifetime ISA

Scottish Friendly has outlined a series of recommendations to enhance the Lifetime Isa (LISA) and help it achieve its potential. The Glasgow based financial mutual has called on the Government to reform the product to ensure it properly serves its dual purpose of helping young people to save for retirement or to buy their own home.

Scottish Friendly is one of the providers to actively support the LISA and new market analysis conducted by the Social Market Foundation for the assurer has identified a number of flaws in the current structure of the product which, it says, need to be re-designed to ensure its success.

‘The Future of the Lifetime ISA’ report calls on the Government to:

1. Ensure that those who save and invest through a LISA are just as able to benefit from employer contributions as those who invest through a traditional pension product.

2. Permit LISA products to be used as compliant auto-enrolment products. Regulators will have to ensure that there is a level playing field between pension products and LISAs, and that inert consumers who are automatically-enrolled into a savings or investment product receive the same protection in relation to charges.

3. Exempt LISA savings and investments from the capital rules for means-tested benefits and support in the same way that money held in a pension product is.

4. Remove the current age restrictions that apply to the LISA so that people can open a product beyond the age of 40 and continue to save and invest into the product beyond the age of 50.

5. Keep the withdrawal penalty and assess over time whether it needs to be higher.

6. Make the age at which LISA savers and investors can access their money for retirement purposes the same as pensions, namely be brought forward from 60 years to, currently, 55 years and keep access ages the same.

Neil Lovatt, Scottish Friendly’s commercial director said: “The purpose of the LISA is to support younger people as they save for retirement and therefore it should have the same status in relation to employer contributions as pension products. This recommendation is supported by our research which reveals nearly half (47%) of people in full-time employment said they would be more likely to use the LISA if employer contributions were included.

“Despite the popularity of the ISA structure with savers and investors there is clearly more work to be done on the LISA. It is by no means the finished article. There are a number of considerations the Government must now make before refining it to ensure it becomes the savings and investment product that people desperately need.

“The LISA could have a transformative impact on many people’s lives and help them to increase their savings and investments and achieve their financial goals. To help people realise these ambitions the Government and the industry need to focus on the potential of the LISA and remove the barriers to increased competition and product flexibility in the pensions market.”

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