New I.S.A./Pension ‘Hybrid’ Derided
New Lifetime I.S.A. blurs the distinctions between I.S.A.s and pensions.
Steve Webb, a former pensions minister has bemoaned the creation of the Lifetime I.S.A., feeling the product fails at being either a pension or an I.S.A. and is instead a “horrible hybrid”.
Mr Webb served as pensions minister during the coalition government and is now the director of policy at Royal London. He highlights what he sees as the eroding of the tax benefits of pensions. He questions if pensions are being degraded with those in power deciding “whether pensions are simply a long term savings product or something special.”
Baroness Ros Altmann, Mr Webb’s successor shares his concerns, stating that in her view “Lifetime I.S.A.s risk poorer pensioners in the future and it is a disaster in the making.” She feels the launching of the product has “mis-selling written all over it” and is concerned customers will be hurt due to its complexities. She says “it is not simple. It is not a pension” its “penalty on withdrawal is punitive.”
Baroness Altmann expresses that “it is fundamentally – as a pension – not a good product.”
“Saving More Tomorrow”
Mr Webb’s suggestion is that the U.K. could move towards a more American style system he describes as “saving more tomorrow”. He points out how “the Americans encourage people to save more tomorrow by forgoing any salary rises and instead putting that increase into a pension.”
Calling for changes Mr Webb advises “there has to be a law that means unless you opt out every time you get a pay rise it goes up by increments, from 8% to 8.5%, then up to 9%. And so on.”
Mr Webb believes action such as this is necessary to avoid a situation where people are “not going to be able to afford to retire”.
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