A consistent theme in the media these days is how the financial fortunes of the older generation seem to be improving while the financial outlook for the younger generation is, well, more pessimistic.
A state pension with a guaranteed triple lock, decent final salary pensions and homes of their own that are usually mortgage free are just some of the factors that bring a spring to the step of today’s senior citizens. A number of these people will have also benefited from going to university when all the fees were paid for by the Government, or to be more precise, the tax payer.
In contrast, tuition fees and levels of student debt are at an all-time high for today’s younger generation, while owning a home is a distant dream for many people in their 20’s and 30’s given the significant deposits that are now required. Furthermore, with life expectancy today higher than ever before, the age at which today’s young workers – who have to pay out to fund the state pension for today’s retirees – can retire will soon be close to 70 years. It’s enough to make young people take to the streets.
In 2016, the Government under David Cameron’s stewardship and George Osborne as Chancellor, recognised that something had to be done to help the hard-pressed younger generation and announced plans for the Lifetime ISA, to be introduced in 2017.
Scottish Friendly has been a consistent supporter of the Lifetime ISA but we feel the initiative has been hurriedly introduced and the product is lacking in a number of ways that could limit the potential benefits to young people.
With this in mind, we have released a report that outlines a series of recommendations to enhance the Lifetime Isa (LISA) to help it achieve its potential. We are calling on the Government to recognise the flaws in the current structure of the product and reform the LISA to ensure it properly serves its dual purpose of helping young people to save for retirement or to buy their own home.
The recommendations from ‘The Future of the Lifetime ISA’ report, which was commissioned by Scottish Friendly and produced independently by the Social Market Foundation, include ensuring that those who save and invest through a LISA are just as able to benefit from employer contributions as those who invest through a traditional pension product.
The Government should also make the age at which LISA savers and investors can access their money for retirement purposes the same as pensions, namely bring it forward from 60 years to, currently, 55 years and keep access ages the same.
We are also calling on the government to remove the current age restrictions that apply to the LISA so that people can open one beyond the age of 40 and continue to save and invest into it beyond the age of 50.
There is no disputing that the Lifetime Isa has the potential to address the issue of record low savings levels among British households and, in particular, young people. This report highlights that the majority know they are not saving enough for retirement or are not confident they are doing so. Our findings also indicate the complexity and negative brand of pension products is acting as a deterrent and that there is a need for an alternative solution.
The purpose of the LISA is to support younger people as they save for retirement and therefore it should have the same status in relation to employer contributions as pension products. This recommendation is supported by our research which reveals nearly half (47%) of people in full-time employment said they would be more likely to use the LISA if employer contributions were included.
The LISA could have a transformative impact on many people’s lives and help them to increase their savings and investments and achieve their financial goals. To help people realise these ambitions the Government and the industry needs to focus on the potential of the LISA and remove the barriers to increased competition and product flexibility in the pensions market.