Budget 2016: Lifetime ISA introduced and a rise in ISA limit - So what does this mean for pensions?
16 March 2016
In line with our pre-budget prediction, today's Budget introduced a new Lifetime ISA for younger savers and a rise in the overall ISA limit to £20,000 per annum. However, despite George Osborne feeling the time isn't right for major pension reform, my view is that the race is far from over.
Our recent citizens' jury on inter-generational fairness highlighted the demand for savings products that help people save for a home whilst building for the long-term. Today's announcements mark the start, not the end, of the story in getting people to save more for their long-term future.
Market forces are now likely to drive more younger savers towards ISAs and away from pensions, a trend that will be accelerated if the Chancellor goes ahead with the type of flexibility offered in the US that allows savers to withdraw savings and repay later. It's interesting that older savers have not been included in the new Lifetime ISA. This may point to a future dual track system, leaving the current pension system in place, but introducing the pension ISA by stealth. Once the market beds down, a change to a fully fledged pension ISA becomes much easier.
I am particularly interested to see the impact on the auto-enrolment market, and employers' reward strategies as pension saving for those under 40 has just become a whole lot less attractive. For those with a significant proportion of millennials in the workforce, a key question will be whether or not to introduce a Lifetime ISA alongside an auto-enrolment pension. In my view, employers that offer pension and Lifetime ISA from a single platform could be the big winners as the pension reform race heats up.