Scottish Friendly launches plan to correct Lifetime ISA 'flaws'

Scottish Friendly says its report identified "a number of flaws in the current structure of the product which need to be re-designed to ensure its success".

The mutual says the government must 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.

It also wants the government to permit LISA products to be used as compliant auto-enrolment products and ask regulators to ensure that there is a level playing field between pension products and LISAs.

Scottish Friendly added that LISA savings and investments should be exempt from the capital rules for means-tested benefits and support in the same way that money held in a pension product is.

It believes the withdrawal penalty should be kept but that age restrictions should be removed 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.

Finally, Scottish Friendly says the age at which LISA savers and investors can access their money for retirement purposes should 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: “There is no disputing that the Lifetime ISA has the potential to address the issue of record low savings levels among British households and, in particular, young people. Our findings indicate the complexity and negative brand of pension products is acting as a deterrent and there is a need for an alternative solution.

“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 needs to focus on the potential of the LISA and remove the barriers to increased competition and product flexibility in the pensions market.”