Government Swats Away Call for Advice and Backs the 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 this week, 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 (‘KISS’ – Humbug Joins the Telegraph’s Campaign to Keep ISAs Simple – 23rd November) 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.

‘it would not appear sensible to turn away free cash in the shape of employee contributions to jump into a LISA with both feet’

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.