George Osborne’s eye-catching announcement has attracted criticism from the industry already – though some have praised the move.
Adrian Walker, retirement planning expert at Old Mutual Wealth, said: “The Lifetime Isa is a gimmick that will only appeal to younger savers looking for help getting on the housing ladder. Very few people will use a Lifetime Isa to save for old-age and pensions are still the best retirement savings vehicle.
“The £1 bonus for every £4 is parity with the basic rate relief you currently receive on a pension, but crucially without employer contributions. Younger savers will also have to place faith in future governments not to renege on the promise of a bonus at age 60.”
Steven Cameron, pensions director at Aegon, said: “Although the Chancellor ultimately resisted the introduction of a Pension ISA, today’s budget shows how attached he’s become to introducing a competitor for pensions in the form of the Lifetime ISA or LISA. Pitched at under 40s, it underlines his mantra of producing a budget for future generations.
“There is a huge risk that the LISA will encourage some under 40s to turn down the opportunity to be auto-enrolled into a workplace pension, even though that comes not only with the equivalent 25% Government bonus on personal contributions, but also with an extremely valuable employer contribution. Employers will not be allowed to pay into LISA. The self-employed don’t benefit from an employer contribution so LISA may suit them, and encourage earlier engagement with retirement savings.”
Jamie Smith-Thompson, managing director of Portal Financial, disagreed that it would become a competitor to pensions.
He said: “The lifetime ISA is essentially what people expected the pension ISA to be, and it is another incentive for people to save, which can only be a good thing.
“With a higher minimum age and lower annual contribution limit, the lifetime ISA is not competition for pensions, so people do not need to decide between the two.
“I suspect that most people will use the ISA for house deposits, while auto-enrolment will be the main vehicle for retirement savings. Taken together, people have a good opportunity to be in very strong positions when they leave the workforce.”
Andy Bell, chief executive of AJ Bell, appeared to agree that auto-enrolment could come under threat from the new ISA as a rival.
He said: “The Lifestyle ISA will go head to head with auto enrolment and I predict the new kid on the block will win hands down.”
He warned that the move makes ISAs more complex and said there was “a danger of us ending up with a spaghetti soup of ISA products”.
He said: “Savers will have the choice of a cash ISA, a stocks and shares ISA, a Junior ISA, an innovative finance ISA, a help to buy ISA or a lifetime ISA. Having multiple ISA products with lots of different rules is complex and confusing. The big selling point of an ISA is its simplicity.”
Elliott Silk, head of employee benefits, Sanlam, agreed with Mr Bell.
He said: “While the new Lifetime ISA is a positive move in giving people more options for saving, it adds to an already complex pensions landscape that people just do not understand.”
Mark Stopard, head of product development at Partnership, said: “An eighteen year old who opens one of these products and contributes the maximum (£5,000 including Government Bonus) could have a fund of £375,000 at age fifty - which is substantially more than the current pot used to purchase an annuity.
“This will make advice more important and relevant that ever as people seek to balance the need for guarantees, long-term savings and access to the funds they are building up. The choice between saving into a Lifetime ISA and saving into an employer’s pension scheme will need to be taken carefully – depending on circumstances.”