Jon Greer, pensions expert at Old Mutual Wealth:
“The Lifetime Isa confuses the long term savings landscape and leaves young people uncertain about where to invest.
“However the view that the exit charge is at odds with the FCA’s charge cap is too simplistic. The exit penalties the FCA were concerned about were those levied by providers and schemes which influence a person’s ability to access pension freedoms. The penalty on the Lifetime Isa is an incentive to use the product for what it was intended for – a house purchase or to be accessed from age 60. The 25% early withdrawal charge shares more in common with unauthorised payment tax charges that apply to pensions, rather than the FCA/DWP charge cap.
“While the exit charge may be aiming to drive the right behaviours, it makes the product complicated and damages the Isa ‘brand’. The Lifetime Isa also appears muddled alongside the government’s successful auto-enrolment strategy.
“It is right that firms should have to remind consumers of the exit charge and any other charges, but that doesn’t get the crux of the problem. The Lifetime Isa needs a rethink.
“The paper introduces a ‘Cash Lisa’. This would potentially need additional consumer warnings as using cash-only for a retirement vehicle is highly unlikely to produce good outcomes over the long term.
“In its current guise, the Lifetime Isa will be used primarily to save towards a first home, very few people will use a Lifetime Isa to save for old-age and pensions are still the best retirement savings vehicle for the majority.
“It is interesting that the paper says personal pensions can be accessed from age 58 rather than age 55. This potentially shows the likely direction of what the government will announce from the State Pension Age review.”