The Lifetime Isa has not been designed to cut across the pension system but is intended to serve young people’s savings needs, the Treasury has argued.
Speaking at the Westminster Business Forum seminar, Edward Odell, head of the savings branch at the Treasury, defended commentators attacks following the launch of the new Lifetime Isa, saying it is not “a replacement for pensions”.
He says: “Simplicity should be the objective and Lifetime Isas are about responding to that ask of flexibility for products. It is not a replacement for pensions but is around making sure there are products out there that are simple to understand. The reaction to Lifetime Isa has underlined that point.”
The Lifetime Isa, unveiled by Chancellor George Osborne in the March Budget, will allow investors under the age of 40 to save up to £4,000 a year and receive a 25 per cent government top-up.
“Lifetime Isa aims to tackle the binary choice of saving for a house or later in life. It is a meaningful incentive for some people who are not engaged with pensions and savings.
“This was an issue that was raised in last year’s consultation on pension tax relief. There is very clear evidence of a lack of understanding of young people around how this tax relief works but also a desire for flexibility.”
During the seminar, a few panelists deemed Isa products have reached “a tipping point” among consumers as they now create confusion.
There are five different Isa products in the market with the Lifetime Isa being available from April 2017.
Nutmeg chief executive Nick Hungerford said: “Isas are a brand that work but this is going to reach a tipping point because people don’t understand the difference among all of them.”
Also speaking at the event, Andrew Baddeley-Chappell, head of policy and governance at Nationwide Building Society, attacked the complexity of the Isa market.
He says: “Even the government’s own cash savings provider is unable to catch up with all the changes. We have a benign market which is not helping savings. The government intervention has created complexity with consumers struggling to understand products.”
The government is currently in an “open discussion mode” on finalising the details on Lifetime Isa and is also “exploring” alternative life events that might count for tax relief purposes as outlined in the latest Budget document, Owen says.