FCA Risk warnings on LISA will highlight the advantages of workplace pensions

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For immediate release: Wednesday 16 November 2016

Workplace pension provider NOW: Pensions today welcomed the FCA consultation paper on the Lifetime ISA (LISA) and plans to issue a series of specific risk warnings to savers thinking of opting out of a workplace pension.

Among the many areas where customers must be warned that pensions may be better for them than a LISA are:

  • Employers must pay a pension contribution for all staff eligible for auto enrolment and this will be lost if people opt out in favour of a LISA
  • Higher rate taxpayers may get more favourable tax relief on their pension contributions
  • Pensions have a maximum exit fee of 1% – and in most cases no exit fee – whereas LISA has an effective exit fee of 61/4% as a minimum other than on the three approved lifetime events
  • Pension contributions can continue to be made up to age 75 but saving into a LISA must stop at age 50
  • Pensions have a default fund chosen by experts, but LISA’s health warnings will remind investors that they have to pick an investment strategy to match their objectives
  • Pensions can be encashed from age 55, but the LISA’s bonus on retirement savings is not available until age 60

Morten Nilsson, CEO of NOW: Pensions said: “For young savers, the Lifetime ISA is going to be very tempting. It can be used to buy a first house, and that comes ahead of retirement sequentially and we know that behaviourally people place a higher value on nearer term events. This could easily result in an increase in auto enrolment opt outs. 

But, savers shouldn’t be too hasty to turn their backs on workplace pensions and I believe that nearly all the savers that read these risk warnings will end up choosing a pension over an ISA because of its many advantages.”

Morten Nilsson added: “There is one further warning consumers should heed but which FCA can’t say. That is will a future Government remain committed to the LISA? Even if they do, will they honour the Chancellor’s pledge that LISA withdrawals after age 60 will be free of tax? Or will those locked in LISA pots prove too tempting a target for future Governments?”

Research* conducted by NOW: Pensions earlier this year revealed nearly a third (30%) of people aged between 18 and 39 plan to save in both a workplace pension and Lifetime ISA when the Lifetime ISA launches next year.

The research found that:

  • 30% say they plan to save both in a workplace pension and Lifetime ISA
  • 16% say they will continue to save into a workplace pension and not open a Lifetime ISA
  • 9% will stop saving into a workplace pension and put their savings into a Lifetime ISA
  • 11% don’t intend to save into either
  • 19% don’t know

–     Ends     –

For further information:

Amy Mankelow
NOW: Pensions
Tel: 0203 640 9075

Cheriton Lee
NOW: Pensions
Tel: 0203 826 1464

Notes to editors

*Research conducted by Opinium online between 16 and 18 March with 715 people aged between 18 and 39.

NOW: Pensions www.nowpensions.com @nowpensions

NOW: Pensions is one of the UK’s largest workplace pension providers with over a million members and tens of thousands of employers from a wide range of sectors. A subsidiary of one of Europe’s largest pension funds, Danish pension scheme ATP, NOW: Pensions entered the UK market in 2011 with a simple and cost effective workplace pension designed specifically with the auto enrolment market in mind.

NOW: Pensions was one of the first providers to achieve independent assurance of scheme quality in accordance with the master trust assurance framework (AAF02/07) introduced by The Pensions Regulator in conjunction with the Institute of Chartered Accountants in England and Wales (ICAEW).

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...its simple design means the pressure is taken off us as the employer and avoids costly administration charges, whilst removing the burden of choice and ensuring the best possible retirement outcome for our employees. — Matthew Johnson, Head of Compensation and Benefits at Adecco Group UK & Ireland
Why do we insist on having a choice of fund manager when the evidence shows there is usually no benefit to be gained…and there is always a negative impact in terms of cost? — Anthony Hilton financial editor of the Evening Standard writing in Pensions World, June 2013
NOW: Pensions is supportive, easy for our employees to understand and uncomplicated in terms of its implementation. Its structured approach removes the complicated investment choices & makes auto-enrolment a straightforward and simple process. — Mark Manaton, Managing Director, Blue Arrow Group
I've known ATP for many years and have enormous respect for the effectiveness of their investment strategy. I'm convinced that NOW: Pensions can become a major player in the UK and look forward to being a part of that success. — Chris Daykin, the former Government Actuary
Over a short period of time, NOW: Pensions has established itself as a respected and credible player in the UK workplace pensions market attracting thousands of employers and hundreds of thousands of members. Joining the team at such a crucial time… — Jocelyn Blackwell, Founder of Dunnett Shaw and Raising Standards in Pensions Administration