Saving the indigenous red pension!
With the launch of the Lifetime ISA (LISA) many within the pension industry and beyond have speculated what this may mean for the future of pensions. A starting point is to consider what the primary appeal of the new LISA really is: is it a shorter term savings vehicle to fund a house deposit or an alternative long-term savings product to fund an individual’s retirement?
Our view is that it will primarily be used as the former. LISAs have a double appeal to young savers: it fulfils a pressing need (i.e. help to buy a home where there is a very real housing crisis) and is also completely tangible (i.e. they have a home).
So the debate should really focus on how employers can help these two savings products to coexist. If not LISAs could be the grey squirrel decimating the indigenous red pension.
For instance, employers could adopt a more pragmatic approach to employee saving: rather than making an employer pension contribution conditional upon a minimum employee contribution, employers could require employees save a minimum amount into either a LISA or the pension scheme. Clearly this might suggest some reforms of auto-enrolment minima may need to be considered along the way.
There is a strong argument that by supporting the savings habit in this way, once the LISA has fulfilled its initial purpose, ongoing employee savings may well continue for the longer term or be redirected into pensions.
Our latest research report has found that just under a third (31.8%) of 16-34 year olds say they would prefer to use an ISA to save for retirement than a pension, with 25.6% disagreeing. The launch of the LISA could seriously impact the appeal (and take-up) of pensions for younger employees. Greater flexibility over how and where employees save should be given serious consideration by employers looking to understand and engage with employees.
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