Labour has called for the lifetime ISA (LISA) to be delayed until 2018 in a stark warning about the potential consequences for auto-enrolment (AE).
Speaking in the House of Commons during a debate on the Savings (Government Contributions) Bill on 17 October, shadow chief secretary to the Treasury Rebecca Long-Bailey said savers will choose between the LISA and a workplace pension.
The LISA will allow savers to put aside up to £4,000 per year, and receive a 25% government top-up. However, they will only be able to access their savings in retirement or for the purchase of a first home, without forfeiting the bonus.
The Labour MP for Salford and Eccles added the LISA would act as a diversion from traditional pension products.
She said: "There is considerable unease about the LISA policy across the pensions industry, the trade union movement, the Office for Budget Responsibility, and select committees of this house.
"The opposition supports the idea of incentivising people to save for the future, especially for retirement income, but we are concerned that the scheme could create a diversion from saving in traditional pension products, rather than being an add-on to one's main pension plan.
"Even a former pensions minister [Baroness Ros Altmann] stated that the LISA ‘could even destroy pensions'. The UK faces a pensions time bomb."
A Treasury impact assessment, published ahead of the debate, concluded around 800,000 people would opt for the LISA by 2021. Most users of the savings vehicles will be people who have never been enrolled in a pension scheme, it added.
Long-Bailey warned the LISA threatened the success of AE, with a year overlap between the introduction of LISA and the full roll-out of AE to small businesses. She also reiterated a Treasury select committee conclusion that LISA will be perceived as a pension product.
The shadow minister also called for the introduction of LISA to be delayed until AE is completely rolled out in 2018.
"The Pensions Regulator has argued that by 2017, when the LISA is available, thousands of small and micro-businesses will not have rolled out auto-enrolment," she said. "Has the government considered timing the LISA roll-out to coincide with the full completion of auto-enrolment to avoid the risks I have outlined?"
The view was backed up by SNP MP for Ross, Skye and Lochaber, Ian Blackford, who accused former chancellor George Osborne of being a "modern day reverse Robin Hood."
He said: "After much effort, automatic enrolment has been successful in encouraging young people to save. We must not undermine those efforts by inadvertently encouraging people to opt out and confusing consumers with new, competing products.
"This is a wheeze from the previous chancellor to deliver higher taxation income today, rather than taxing consumption in the future-a modern day reverse Robin Hood."
Former pensions minister Steve Webb, now Royal London director of policy, also recently called for the product to be delayed. Writing for PP, he said it would be a "mistake for the government to rush ahead" with the policy.
The Pensions Regulator (TPR) has substantially increased the usage of its powers against trustees – posting a sharp rise in the use of formal information gathering powers and High Court production orders during the three months to the end of September....
The Pension Schemes Bill has completed its third reading, crossing its latest hurdle in the House of Commons.
An amendment to the Pensions Schemes Bill which would have seen people given a pre-booked Pension Wise appointment ahead of accessing their retirement savings has been defeated.
A proposal to ensure savers receive a Pension Wise appointment prior to accessing their retirement pot has received cross-party support in parliament, while Labour seeks net-zero pensions by 2050.
Pension scams are not just about the money lost, but the lives devastated, says Nicola Parish, so the industry must unite to defeat this scourge.