LISA and Pension – happy siblings or deadly rivals?
In the spring 2016 Budget, George Osborne announced the upcoming birth of the Lifetime ISA, better known as LISA.
To many in Pensions, this may feel like parents announcing to a child that they are about to get a new brother or sister, and with it comes a feeling of excitement, trepidation and concern about what the future holds – will I no longer be favourite? What if I don’t get any more toys? etc.
LISA will clearly become the younger sibling to the older Pension. Rather like when a sibling is born, I suspect whether she is liked by the older Pension will depend on the immediate interaction in the weeks and months after birth. Equally big brother Pension may have to quickly get used to no longer being the centre of attention.
Anything that encourages saving is to be welcomed. LISA’s cousin, ISA, is generally better understood by individuals than Pensions, but was not seen as a rival, whereas LISA has the potential to take the long term saving crown. However if LISA and Pension play nicely, the long term savings family could benefit as a whole.
LISA has potential to be the nice sister that gets individuals talking not just about her, the new born, but also remind everyone that there is an older sibling, who may have faults, but is still an important and loved member of the family. After all, when a relative goes to see the new arrival bearing gifts, the older sibling usually gets a present as well!
The buzz of a new birth
LISA’s birth will get everyone talking about Pensions as well, even if it just comparing the two siblings for differences, similarities and genetic make-up – this has to be a good thing as conscious long term savings decisions are being made and the outcomes are being considered.
The gift to Pension from LISA may be that it ignites a debate around how to save for the long term, who is better and what different attributes they bring to the relationship. Don’t forget LISA can do many things that Pension can’t such as help save for a house or take money out in a more flexible manner although there is a price to pay for this.
Alternatively LISA could become the annoying little sibling that takes all the attention leaving Pension to go away and sulk in a dark corner. Our analysis suggests that this is unlikely.
Our Employee Insight Report 2016/17 (which is due to be released shortly) suggests that LISA and Pension can support each other and indeed become best friends, not just siblings. Our research shows us that that there is general support across all age groups for LISA, but particularly at the younger ages.
Interestingly the least support was in the 45-54 age range, where only 38% of participants thought it was a good idea – perhaps this has something to do with this cohort being just past the cut off age for eligibility.
Our research also shows that if it does come down to a straight choice between Pension and LISA,, most young employees say they would rather stick with a Pension. Whilst 37.9% of 16-34 year olds said that if they could access their pension more flexibly (e.g. to buy first house) they would be willing to give up the Pension contribution that their employer pays, 42.2% said they would not and 19.9% said they did not know. This suggests that by working together the siblings may both have a bright future; although a friendly rivalry is likely to be healthy for both.
Getting the room ready for the new arrival
LISA, once it is born, will definitely have a place in the house. The buzz it will create could be the catalyst for a step change in the benefit provision for employees, so now is the time to start getting the room ready by considering how your employees will react to the new birth. At the same time it’s important not to forget the older sibling and the role it has to play!
The introduction of a new family member will inevitably be disruptive, so how can you brace yourself for this change? Understanding your membership is the first step. We are seeing more and more schemes taking a data-led approach to design, and rightly so, as it results in a member-centric solution. Deploying demographic profiling and segmenting your workforce will first of all inform employers of the members of staff who are eligible and those that aren’t. Couple this with information on contribution levels, the number of renters and homeowners within the business and recruitment strategy and employers will be able to build a clearer picture of LISA’s potential impact and demand.