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Lifetime ISA ‘could be game changer for workplace savings’

Having multiple pension pots leads to confusion for employees

The launch of the new Lifetime ISA could shift employer views on workplace savings schemes for younger workers, employee benefits consultancy Portus says.

Under-40s can invest up to £4,000 a year tax-free in Lifetime ISAs from April 2017 to benefit from a 25% Government bonus on savings made before age 50 and take out the proceeds tax-free and charge-free to purchase a home or for anything else at any time after age 60.

Coupled with other moves such as Help to Buy ISAs and Help to Save for employees receiving universal credit or tax credits it changes the retirement planning decision for younger savers.

Portus believes the new schemes will drive new thinking about workplace saving schemes, which could be more attractive to younger workers and lower earners than pensions.

Portus Consulting Commercial Director Steve Watson says: “This potentially turns everything on its head in terms of pensions and savings in the workplace following the success of auto-enrolment.

“Over and above minimum pension contributions required by auto enrolment, employers could start looking at workplace savings schemes such as a Lifetime ISA as an alternative to pensions. For younger workers and low earners Lifetime ISAs and schemes such as Help to Save may be more relevant.

“The Chancellor is saying pensions are still too inflexible and hard to understand. The tax benefits remain very important for older workers and it is good news that the tax-free lump sum at age 55 has been preserved but retirement planning decisions are no longer as straightforward. The introduction of a Lifetime ISA could pave the way for a Pensions ISA”

He also pointed out that the rise in Insurance Premium Tax by 0.50% will boost the cost of private medical insurance – average premiums could increase by around £6 a year as a result.