The scope for mis-buying or mis-selling the Lifetime ISA (LISA) is ‘significant’, Dunstan Thomas has claimed following research by the retirement services provider into the so-called millennial generation.
The study of 1,000 people aged between 23 and 36 found more than a quarter (27%) of those canvassed believe the LISA is a more tax-efficient retirement savings vehicle than an auto-enrolled workplace pension, while almost two-fifths (38%) were unsure which product was more tax-efficient.
The research also highlighted the potential for a jump in the demand for financial advice. A quarter (25%) of those surveyed indicated they might take out a LISA as a retirement savings product and a third (32%) anticipated taking one out as soon as they become available this April.
Despite its apparent popularity among the younger generation, half of those surveyed (50%) admitted that they had no awareness of the LISA or that, while they had heard of it, they did not know what it was for.
At the same time, one fifth (20%) said they were either quite or very likely to opt out of an auto-enrolment workplace pension scheme when they were offered the opportunity to do so.
Given these findings, said Dunstan Thomas director of retirement Adrian Boulding, the scope for mis-buying or mis-selling looked “significant”. He added: “Our millennials study results show there is a clear danger of the millennial generation buying the LISA for the wrong reasons.
“Our findings indicate awareness of the product among the target audience is low and they may well decide to use the LISA to save – apparently more flexibly – for retirement. Having done this, they may even opt out of their workplace pension scheme which is, in the main, a much better way to save for retirement than a LISA because pensions enjoy matching employer contributions.”
Baroness Ros Altmann described the results of the survey as a “disaster,” adding: “Many will not realise the LISA’s 25% bonus is just the same as the 20% tax relief and some will give up both an employer contribution and higher rate relief to go into an inferior product.
“This is a real danger to pensions and I cannot warn strongly enough that it risks misleading people into a poorer retirement.”
Royal London director of policy Sir Steve Webb was slightly more optimistic, however, saying: “Getting young people to save for a pension was always going to be a challenge and, in a way, auto-enrolment had started to lift the gloom as more than two million under-40s have joined pension schemes since auto-enrolment.
“This research does suggest the LISA is going to complicate matters but, more generally, the opt-out stats have not been bad for young people. Actually, there is no evidence young people, prior to the creation of the LISA, have been opting out in large numbers – but there is a risk that could change.”
The Dunstan Thomas survey, which was conducted last month by Opinium Research, suggested millennials have higher savings priorities than retirement provision and a deposit for a first home – the primary aims of the LISA.
One-fifth (19%) of those surveyed said they were making additional provisions for their retirement over their prescribed employer or state pensions scheme contributions – exactly half the propotion building “a rainy-day savings fund”, the most popular reason for saving. Also ahead of saving for retirement were saving for a nice holiday for just under a third (29%) of those surveyed and saving for a house for just over a quarter (26%).