In chancellor George Osborne’s Budget last month, he announced the introduction of the lifetime ISA. The new savings vehicle will be available to people under 40 from 2017, and will give savers a 25% bonus on savings up to £4,000.
Many in the pensions industry have described the lifetime ISA as a ‘stealth’ move towards pension ISAs after Osborne dropped plans to overhaul the way pension contributions receive tax relief.
The Institute for Fiscal Studies director Paul Johnson highlighted the 5% exit charge for people who access lifetime ISA savings before they turn 60 unless they are buying a house. ‘What does a savings vehicle that penalises you for accessing money before you’re 60 sound like to you?’ he wrote.
However, speaking at the ABI Long Term Savings conference, Pensions minister Ros Altmann said that the lifetime ISA should not be viewed as a pension. She said the lifetime ISA was useful for other saving purposes but did not ‘last a lifetime’ as pension vehicles are intended to do.
There is no doubt that the best form of saving for retirement is the pension. The lifetime ISA has advantages for example if you want to buy a home,.
‘I do believe’, said Ros Altmann,’that turning pensions into ISAs would be a disaster and it would destroy pensions as we know it. The reason why I think the current pension system is so sensible and I want to be able to promote it, is it has the right behavioural nudges for people.’