The new Lifetime ISA could have a "detrimental effect" on retirement saving in the UK and more research needs to be done to calculate its effect on workplace pensions, according to RetireEasy.co.uk.
It is calling on the Treasury to launch a consultation before LISAs are introduced next year into whether savers will choose the tax-free availability of a LISA over a workplace pension.
If so, they could lose out on employers’ contributions over a 30-year period as well as the enhanced returns of a pension plan, which RetireEasy says equates to a loss of £45,000 to their pension fund "at the very least".
However online investment site True Potential Investor believes that savers could be over £34,000 better off with the a Lifetime ISA compared to a pension.
The firm’s three-year study into the nation’s savings shows the average saver aged under 40 already puts 38% more into their ISA compared to their pension.
The 25% bonus on Lifetime ISA savings, combined with savers’ already higher ISA contributions, mean that by the time they reach 50 years old, their Lifetime ISA could be worth £123,360.
Meanwhile, based on current savings trends, True Potential Investor calculates their pension fund to be worth £89,280 including basic rate tax relief, rising to £111,360 after including employer contributions at 3% of the average workplace pension salary.
Mark Soper, co-founder of RetireEasy.co.uk, said:
"Once the gloss fades off this shiny, new product, we will see there is an insidious, popularist element to its launch. Initially a vote winner for the Chancellor, it can only serve to decrease the amount of money savers set aside for retirement.
"The allure of the LISA’s early access and possible tax free withdrawals may lead to many workers withdrawing from or opting out of their workplace pensions with the associated loss of the employer's pension contribution. At best, it provides a layer of complexity for an individual to consider before joining a workplace pension – which is counter intuitive to automatic enrolment; at worst, this could prove disastrous in the longer term for a healthy retirement plan."
David Harrison, Managing Partner at True Potential Investor, said:
“The pensions industry is queuing up to say the Lifetime ISA is bad news and will confuse people, which is both highly ironic and wrong. The fact remains that savers voluntarily put more money into their ISA each month compared to their pension.
“Until now, pensions have had all the financial incentives but the Lifetime ISA goes with the grain of public opinion and levels the playing field. Savers will continue to put more into their ISA and the new Government bonus means their Lifetime ISA could be worth over £34,000 more than their pension based on current savings rates.”
