LISA Conference - tisa.uk.com€¦ · • Michael Wainwright, Partner, ... • Richard Parkin, Head...
Transcript of LISA Conference - tisa.uk.com€¦ · • Michael Wainwright, Partner, ... • Richard Parkin, Head...
Agenda
• Opening remarks by Jasper Berens, Head of UK Funds, J.P. Morgan Asset Management• Paul Cottis, Pensions & Savings Policy, HMRC and Rosie Neilson, Policy Advisor, Pension & Savings, HM
Treasury ‘Implementing the Lifetime ISA – an HMT/HMRC update’• Tom McPhail, Head of Retirement Policy, Hargreaves Lansdown ‘The Lifetime ISA: Meeting consumer
needs’• Michael Wainwright, Partner, Dentons LLP ‘LISA: What could possibly go wrong?’• Coffee Break• Andrew Baddeley-Chappell, Head of Policy & Governance (Mortgages & Savings), Nationwide ‘Lifetime
ISA: Help to Buy’• Rob Booth, Director of Investment and Product Development, NOW:Pensions ‘Does the Lifetime ISA
threaten the success of Auto-Enrolment?’• Richard Parkin, Head of Pensions and Retirement Product, Fidelity ‘Learning to love LISA: integrating the
Lifetime ISA into workplace savings’
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The Lifetime ISA: Meeting consumer needs
• Suitability
•Key policy issues
• Self-employed
•Consumer research
•Customer engagement challenges
Key policy issues
Age eligibilityLoan-backsQualifying life eventsNon-bonus eligible contributionsApplication of 5% penaltyTidying up
H2BContribution limitsJISA
The self-employed and their pension contributions
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£0
£500
£1,000
£1,500
£2,000
£2,500
£3,000
£3,500
£4,000
0.00
500.00
1,000.00
1,500.00
2,000.00
2,500.00
3,000.00
3,500.00
4,000.00
4,500.00
5,000.00
2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15
Number ofself-employed
Pensioncontributions£m
Tho
usa
nd
s
LISA demand
Are you likely to fund an investment into a Lifetime ISA using money from one of your existing ISA accounts in
order to receive the government bonus?
Yes
No
Not sure
LISA demand
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
90.0%
Instead of apension
As well as apension
Instead of aHelp-to-buy
ISA
Instead of aCash ISA
Instead of aStocks &
Shares ISA
Alongside oneof the above
ISAs
How do you anticipate using the Lifetime ISA?Please select all that apply
LISA demandHow often do you anticipate making contributions to
your Lifetime ISA
Monthly by direct debit
Annually
Both
Ad hoc one-off payments when Ican afford to
LISA demand
What type of investment will you make in Lifetime ISA?
Cash
Stocks & Shares
A combination of cashand stocks & sharesNot sure yet
LISA demand
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
Pensions givemore incentive to
save
Lifetime ISA givemore incentive to
save
Pensions aremore flexible
Lifetime ISA aremore flexible
How do you think the Lifetime ISA compares with a pension?Please select all that apply
LISA demand
What will be your main motivation for opening a Lifetime ISA?
Saving for my firstproperty
Saving for my future
Both saving for aproperty and saving formy future
Not sure yet
LISA demand
If the government bonus was paid more frequently than proposed would you be:
More likely to save in aLifetime ISA
Less likely to save in aLifetime ISA
Indifferent
Not sure
Customer engagement challenges
• Simplicity is the key
• Differences across ISAs
• Government top-up
• Non-qualifying withdrawals
• Investment choices: cash or shares
• Transfers
• Eligibility post 40: account closures
• Inflexibility and unfairness in workplace pensions
• New product gives transparency and control
24
Pension Transfers and Opt-Outs
• Existing products complex and expensive
• Government framework for simple low cost products
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Stakeholder Products
• Repayment mortgage seen as a wasted investment opportunity
• Tax advantaged investment as repayment vehicle gives profit opportunity
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Endowment /PEP Mortgages
• Shares give a mix of income and capital but some investors want one or the other
• Financial engineering to create income shares and capital shares
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Split Cap Investment Trusts
• Equity funds have variable returns and high charges
• Product offers fixed return subject to clearly defined contingency based on market performance
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Precipice Bonds
• Standard fund achieves competitive return investing in highly liquid assets
• Possible to achieve marginally higher return by accepting greater risk on duration and liquidity
29
AIG Life Enhanced Fund
• Intense competition on price (interest rate) for consumer finance products
• Opportunity to subsidise through higher pricing on bundled products
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PPI
• LISA is a targeted initiative based on a product with a long history of success
• Combination of incentives and restrictions creates a dilemma compared with the vanilla version
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Conclusion
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Smarter. Simpler. Better. 35
Smarter. Simpler. Better.
Does the Lifetime ISA threaten the success of auto enrolment?
Smarter. Simpler. Better. 36
So many questions?
• Has auto enrolment been a success so far?
• If yes, will it continue to be so?
• Is LISA an alternative to a Pension?
• What impact will LISA have on member behaviour?
• What about employer behaviour?
• Is this just the beginning of a long term savings revolution?
Smarter. Simpler. Better. 37
Work and Pensions Committee – May 2016
• “Pensions automatic enrolment (AE) has so far been a tremendous success”
• “An additional 6.1 million people are enrolled in a workplace pension and saving for their retirement, with many more to follow”
• “Employer compliance rates are high and employee opt-out rates are low”
• “it is now at a crucial and risky stage of its development”
• “It is imperative that it is not undermined by other government-sponsored forms of saving”
Smarter. Simpler. Better. 38
But we are far from a job well done
• Inertia is both friend and enemy to auto enrolment success
• Increasing contributions will increase opt-out rates
• 8% of band earnings must be just the starting point
• Small employers need more support
• Any obstacle in the road is dangerous
• Promotion of LISA will raise questions amongst employers and savers which maybe didn’t exist
Smarter. Simpler. Better. 40
What they said…DWP:
The LISA is not a part of the pension system but an additional flexible savings productthat can complement pension savings.
Chancellor, George Osborne:
The LISA is for those under 40, many of whom haven’t had such a good deal from thepension system.
ABI:
LISA risks undermining AE’s success in encouraging young people to save. Whilst youngpeople who switch to the LISA are still saving, they will not be saving in the mosteffective way.
Pensions Minister, Ros Altmann:
A pension is a pension and an ISA, whatever you call it, is not a pension … It doesconcern me if people are trying to suggest that this Lifetime ISA is somehow a pension;in my view it is not.
Smarter. Simpler. Better. 43
LISAs won’t last –remember those
Child Trust Funds?
I wish the Government had a
clear policy
You’ve got to stick with the pension first to make sure you get contributions from
your Company
You know what you’re like Jeff – put
it into a pension, then you won’t be
able to touch it
Lucky we’re loaded -We should put as
much as we can into both
Smarter. Simpler. Better. 44
I’m always being told I should have an emergency fund – I can get my money out from a LISA if I
need to
What about those poor BHS pension members
– I wouldn’t trust pensions so I’m going
to go for the LISAI’m going to have to pay 5% of my salary to my pension – LISA
has no minimum and I can vary it
Steve and I want to buy a house as soon as we can so we’re both going to save in a LISA – we can’t afford a
pension as well
They’re all so boring
Smarter. Simpler. Better. 45
The Logical Argument
Age 60Projected Fund
Value
Fund attributable to member’s
savingsNet Available Fund
Available Fund as a percentage of
“member’s savings”
Pension £973,900 £479,200 £974,000 203%
LISA £599,000 £479,200 £599,000 125%
Start at age 22. Individual pays £4,000 pa out of take home pay. Investment return of 5% net of all charges.Assumes auto enrolment contributions increase in line with current legislation. Pension Liberation assumes 55% tax charge only
Age 50Projected Fund
Value
Fund attributable to member’s
savingsNet Available Fund
Available Fund as a percentage of
“member’s savings”
Pension £533,000 £261,800 £240,000 92%
LISA £327,000 £261,800 £249,000 95%
Smarter. Simpler. Better. 47
What about Employers?
• What will small businesses do?
• LISA membership instead of auto enrolment will save the employer money
• It’s illegal to encourage staff to opt-out of auto enrolment
• It’s not illegal to:
• Promote a workplace ISA
• Talk about the advantages of LISA
• Let nature take its course
Smarter. Simpler. Better. 49
“We recommend the Government develop a communicationscampaign that highlights the differences between the LISA andworkplace pensions”
“The Government should also conduct urgent research on any effectof the LISA on pension saving through AE”
“The findings of this research should be reported in time for the 2016Autumn Statement”
Conclusions
Work and Pensions Committee – Recommendations
Thank You!
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