DIY Investor Magazine
/
Jan 2017
22
ISA OR PENSION? GOVERNMENT IGNORES CALL
FOR ADVICE AND BACKS LIFETIME ISA
The government has rejected proposed legislation
that would see customers given the option to receive
independent advice before purchasing a new Lifetime
ISA (LISA) despite concerns about the potentially
damaging effects of opting out of auto-enrolment
schemes.
Labour MP Peter Dowd, proposed the amendment in
Parliament, arguing that the advice could be made
affordable by using a robo-advice platform; he also
proposed that the LISA be delayed until 2019, and
that the government formally review its effect on auto-
enrolment annually. Making his case for independent
financial advice, Mr Dowd said: ‘I would contend that if
the government can’t get its position on LISA clear, then
how will ordinary people in the street?’
As reported on DIY Investor
the Daily Telegraph has
been particularly vocal in its condemnation of the levels
of complexity that have been introduced by the new
product types; there has been quite a backlash from
some heavy-hitters including Baroness Altmann who
fears that the LISA will encourage the wrong behaviour
in those saving for retirement and others who fear that
the complexity of the ISA regime could put savers off for
good.
Mr Dowd said this potential confusion was why Labour
was proposing that ‘all applicants for a Lifetime ISA have
independent financial advice made available to them’.
‘Financial advice is essential for any expensive financial
product, especially when retirement income is involved,’
he said. ‘The advice will be offered automatically
through an opt-in example, and the service provider
would sign a declaration outlining the advice that the
applicant had received. ‘Independent financial advice
doesn’t have to be expensive.
In fact, for example, the government could mandate a
robo-advice scheme,’ adding that experts had informed
him that a robo-advice scheme would be a reasonable
course of action. However, in rejecting Mr Dowd’s
request, financial secretary to the Treasury Jane Ellison
said: ‘We don’t think the new clauses are necessary.’
She also dismissed a call from the Scottish National
Party to scrap LISA altogether on the grounds that it
would undermine auto-enrolment and only benefit the
well-off. With the FCA actively promoting automated
investment, colloquially ‘robo-advice’, as the solution
to the advice gap that exists, on first glance Mr Dowd’s
suggestion may appear eminently sensible.
However, in this instance, advice is required around
behavioural choices as well as investment performance,
and few existing platforms are equipped to weigh the
relative merits of an auto-enrolled pension vs a LISA as
a retirement savings vehicle.
However, companies such as Wealth Wizards do
currently offer online pensions advice so maybe the
technology exists to support Mr Dowd’s suggestion
despite the government’s refusal.
The ISA vs Pension debate has had a good airing over
the years and the conclusion has invariably been – ‘do
both’, which may be easier for a financial hack in a glass
tower to write than it is for one of Theresa’s JAM families
to contemplate.
Each account type has merits and it would not appear
sensible to turn away free cash in the shape of
employee contributions to jump into a LISA with both
feet, even if you have prioritised saving for the deposit
on a property above retirement planning.
However, with the public purse strings seemingly
tightening by the day, it is likely that there will be the
need for greater personal responsibility when it comes
to later life savings and decisions made early on could
make such a profound difference to outcomes that Mr
Dowd may well be onto something, albeit that it would
be worth investing the extra in providing good old flesh
and bone (and Hobnob) advice.
IT WOULD NOT APPEAR SENSIBLE TO TURN AWAY FREE
CASH IN THE SHAPE OF EMPLOYEE CONTRIBUTIONS TO
JUMP INTO A LISA WITH BOTH FEET
