It is extraordinarily rare that you get government intervention in financial services that is widely heralded as a good thing.
Help to Buy: great for developers, expensive for first time buyers. Pension freedoms: jury is still out. Stakeholder pensions: harrumph.
The Lifetime Isa however is a different story. I’m actually quite jealous that I never had the opportunity to take one out.
There are several reasons young people love it. The first is the 25 per cent bonus, obviously. Then is the fact that it gives you the flexibility to save early, so from the first pound you put in you start to benefit.
And the third factor is how it has handed back power to young buyers. No more are they beholden to developers and banks to get their first home. Instead they can do with their savings as they choose.
But of course, the Lifetime Isa can also be used as a pension. And here it really has an additional benefit. Not only is the government top-up identical to what you would receive as tax relief in a pension for a basic rate payer, but on the way out the money is tax-free.
This makes it an extraordinarily valuable savings product, probably better than a personal pension for those who can only afford to save £4,000 a year or less.
It is success through simplicity, what a shame then that employers do not recognise this and start providing access to the types of financial products savers want.
The other area of Government intervention that has been a success is auto-enrolment.
I’ve written here before about why I believe some are so busy congratulating themselves about the achievement of auto-enrolment in getting 10 million people in to a pension, that they have forgotten how long it took to get here, and also that we now need to move forward.
Auto-enrolment can still fail if the industry and ministers fail to build on the great strides that have already been taken. We’re walking in the right direction but we are a long way from our destination. What we need is a road map.
The first part is to boost contributions from employers and members, lower the age restriction and make contributions from the first pound of income.
That’s a job for ministers. The second part is about boosting communication and engagement comes down to the industry which means joining up savings to pensions.
It’s time to think more about communication and engagement. Just the other day I saw a scheme asking how they could help achieve better member outcomes? Clue: stop talking about member outcomes.
You need to focus on what they need today in order to make their savings better for tomorrow. The industry cannot afford to sit back and solely rely on access to pensions alone to do this.
Salary sacrifice schemes, healthcare benefits and other in-work perks have become part and parcel of working for a big employer, but still access to other financial services lags far behind.
The idea of sidecar savings has been kicked around for years now, culminating in the recent trial by Nest. You won’t hear many say it, but that was a disaster, with only 1 per cent of employees taking it it up.
But what do you expect when engagement is so low to start with? Two models have been trialled so far, one a linked account and the other a combined account.
To be a success though what is needed is the ability to offer Lifetime Isa alongside pension as a choice from day one in employment.
The House of Commons report in to the Sidecar Savings trial leaves me with the over-riding impression that it failed because accessibility is so poor. It also failed because of the crackpot notion of calling it Jars – more unnecessary complication.
Financial planning is changing. Retirement planning is not just about pensions, it is about Isas and housing too (heavens, the growth in equity release is staggering, particularly among more affluent homeowners).
And the demands of savers have changed too. If your pension cannot be viewed on an app while you’re on the bus on the way home from work, then you cannot reasonably expect savers to engage with your scheme. Young people expect transparency and snappy communication.
Employers and pension firms need to think more laterally about how employees really want to save – and if they are young that means Lifetime Isas and low costs trackers.
They want flexibility, accessibility and the products that are suited for their lifestyle. Not a one-size fits all approach that has been perpetuated for decades.
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