AE opt-out fears calmed by LISA study

Fears that the Lifetime ISA (LISA) could create a surge in auto-enrolment (AE) opt-outs appear to be misplaced, as a recent LISA study conducted by AJ Bell revealed that the vast majority (78%) of people contribute towards both the product and their workplace pension.

The survey of LISA customers found that just over half (56%) of consumers are using the product for retirement, while about a third (32%) are contributing towards their savings vehicle for their first home.

Commenting on the findings, AJ Bell senior analyst Tom Selby said: “UK savers have clearly taken to the Lifetime ISA, with 166,000 accounts opened in the product’s first year. That is a promising number given the product is new and a relatively small number of providers currently offer it.

“Encouragingly, fears savers would opt-out of auto-enrolment in their droves in order to fund their LISA appear to have been misplaced. Around 4 in 5 LISA savers are contributing to a workplace pension and a LISA, while just a handful have chosen to quit their workplace scheme.”

According to the research, just 3% of those not contributing towards a workplace pension said they had opted-out to fund their LISA.

Selby added: “Rather than sowing the seeds of auto-enrolment’s demise, the LISA is providing a valuable savings option alongside the flagship reforms.”

Furthermore, the study highlighted that the perks of the LISA have been well advertised, with more than 9 in 10 customers being aware of the £4,000 annual contribution limit and the 25% bonus.

Despite this, the government’s exit penalty caused confusion among consumers, with 1 in 5 unable to explain how the charge works.

“The LISA is not perfect, however, and one problem area the Government must now address is the exit penalty,” the AJ Bell senior analyst noted.

“With the LISA approaching its second birthday now is the time to revisit the mechanics of the product. Scrapping the exit penalty would be a sensible place to start. At the very least the exit penalty should be reduced to 20% so that it equals the value the Government bonus adds to contributions and covers investment growth achieved on the bonus.”

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