The Lifetime ISA (LISA) will not affect the existing auto-enrolment pension scheme, according to the Government.
In a report by the Work and Pensions Committee, the Government responded to a series of concerns and recommendations raised in May 2016 in regards to the new LISA scheme.
LISA, set to be rolled out in April 2017, will allow people to contribute a maximum of £4,000 each tax year to receive a 25% Government bonus.
The scheme is similar to that of the first time buyers ISA, and allows savers to receive an additional maximum of £1,000 a year on top of their contributions.
The scheme has come under fire as some experts believe that it’s likely to deter people who have little financial knowledge from saving through the auto-enrolment pension scheme, as LISA appears to offer more at face value.
MPs, however, have pointed out key differences between each scheme, and have recommended that the Government develop awareness on delivering the right factual information for people to base their saving decisions on.
“It should make it clear that the LISA is not a pension and that for employees who have been automatically enrolled, any decision to opt-out is likely to result in a worse outcome for their retirement. The Government should also conduct urgent research on any effect of the LISA on pension saving through auto-enrolment”, read a statement by MPs.
The auto-enrolment pension scheme offers tax relief on every contribution, falls within the lifetime limit of £1 million for the total all an individual’s pensions, and all savings generate returns or losses instantly, compared to that of LISA’s yearly bonus.
The Government will also monitor the success of auto-enrolment in workplace pensions, opt-out rates, and contribution based savings.
6.4 million workers are currently enrolled onto the automatic pension scheme under 171,100 employers.
For advice on ISAs or pensions, please contact the expert team at Birchwood today.