Why the Lisa should be part of the DC pension structure
He is 25, from a well-to-do family, with a great job where he is earning a good salary, has no debt (not even a student loan) and while he is renting in London, it is very reasonable. He has a social life which, while not 24/7, does mean his only luxury in life is not the morning latte (you can see why he needs to be fictional!!)
Anyway, John is happy that the soon to be introduced Lisa means he can stash away an extra £4k in savings to use as a deposit on the purchase of his Battersea one bed pad (which is apparently a steal at £445k).
He can also still take advantage of the very generous 10% company contribution to his workplace pension which admittedly he also has to contribute 5% to get (but hey - he gets tax relief at his marginal rate on that!) so you know, John is a lucky boy.
Jane is 25 and is happy too. She earns £25k, and like 41% of our Generation Why respondents in her age and affluent cohort, sees paying down debt as her immediate concern. She also wants to save for a bedsit to get on that housing ladder and the newly introduced Lifetime Isa (Lisa) is how she plans to do it.
Jane has decisions to make
Sadly, she can't quite find the money (despite cutting out the latte) to continue saving into her pension which she joined at 1% AE matched. She wonders what 1% would achieve in 45 years time anyway...and even the death in service scheme linked to it doesn’t seem that valuable at such a tender age.
It makes me wonder how Jane might make her informed decision because from the employers perspective, I would worry that offering any kind of help and/or education might be construed as incentivising opt out, and I don't fancy the fine that would bring.
Why we couldn't look to incorporate the access within the current DC pension structure and redefine the vehicle as a Workplace Saving is beyond me – a UK version of the US 401(k) plan or '401 uK lite' per chance? Well, it’s not actually beyond me, as it clearly heralds the change sometime in the future of the saving and incentive regime.
In the meantime the government introduces a variant of savings potential, void of the governance structure and fee constraints that are in place in the pension world. Both may feel like winners today, but sadly only John really wins in the long term and this demonstrates why it is a big step back to go forward. George, I implore you - please don't dally too long before the next step forward.
Damian Stancombe is partner at Barnett Waddingham.
This article was supplied by Barnett Waddingham.
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