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Lifetime ISAs (CTC Commentary)

30th Mar 2016

Although CTC believes that George Osborne was right to bow to pressure from the pensions industry not to introduce wholesale changes to pensions taxation at this time, he has through his introduction of the Lifetime ISA succeeded in fundamentally changing the pension planning landscape for the future.


Whilst it is essential that progress on Auto Enrolment is not disrupted with major changes it has always been recognised the system will not deliver a satisfactory level of retirement income; even with the stipulated contribution level rising to 8% of salary.  Many commentators had suggested that once Auto Enrolment was complete in its first phase these mandatory levels would be further increased.  However it is now likely that any such increase would need to include the option for contributions to a Lifetime ISA rather than into the existing pension regimes.


Additional savings into a Lifetime ISA, rather than a traditional pension arrangement, would be especially attractive to the younger working age groups because of the ability to withdraw money earlier (with no loss of incentive) for deposit use.  Full flexibility of access is also attractive, albeit with loss of the incentive if other financial needs arise.  Take-up of such an option is likely to be much greater if such arrangements can be set up through payroll deduction running alongside the AE regime. 


CTC has long believed that facilities for payroll deduction and ISAs would be welcomed in general, and we already support such a capability.  A key challenge now will be for those companies supporting payroll deductions (for pensions) but don’t have the products or the systems to support a parallel offering. 


This will have implications not just for administration (linking to payroll), but also for Illustrations and planning tools so that employees can judge the relative merits of additional saving into the pension regime and/or the Lifetime ISA.

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