Lifetime Isa no substitute for workplace pension, says Baroness Altmann


Savers should not see the new Lifetime Isa as a substitute for saving into a workplace pension, the pensions minister has warned.

Chancellor George Osborne recently unveiled Lifetime Isas, which will be available by April next year, to help people aged between 18 and 40 save for their retirement - or their first home - in one place.

Lifetime Isas will offer savers an added 25% Government bonus and they will sit alongside the drive to encourage more people to save into a workplace pension under automatic enrolment.

Some experts have suggested the Lifetime Isa will mean future generations increasingly favour Isas - which are built up from taxed income - over pensions, which are only taxed when the cash is withdrawn.

Asked about Lifetime Isas at a hearing of the Work and Pensions Committee, pensions minister Baroness Altmann told MPs: "This is not something I would suggest we should consider to be an alternative to a workplace pension or a private pension for those who are working." 

She said: "A pension is a pension, an Isa, whatever you call it, is not a pension.

"The Lifetime Isa makes sense for somebody who is trying to save for their first home but not for someone to opt out of a workplace pension where the most powerful benefit of the workplace pension is the employer contribution.

"To lose that in exchange for an Isa which may or may not last a lifetime, and indeed the behavioural nudges within this Lifetime Isa are that it won't actually last a lifetime, whereas the behavioural nudges in a pension are that it will last a lifetime."

She continued: "From my perspective, pensions are the way to save for later life. A Lifetime Isa could be useful for those who can't benefit from auto-enrolment for some reason, but if you can, auto-enrolment is unquestionably the best thing for you to do, with an employer contribution."

Baroness Altmann told the committee it is a "myth" to believe that most current pensioners are wealthy.

She said the Government is "100% committed" to the triple-lock guarantee by which rises to the state pension are calculated.

She said the guarantee will remain in place until 2020, after which the policy will be a matter for future governments.

The triple-lock means the state pension increases in line with inflation, earnings growth or 2.5% - whichever is higher. But critics have argued it is an expensive guarantee that has protected pensioners at a time when changes to other payouts have hit working age families hard.

Baroness Altmann said: "If you look at the income distribution of pensioners, most pensioners are not well off. This is a myth. There is about the top 20% or so who are, I would argue, perhaps in the kind of category that often is used to categorise all pensioners. And a significant chunk of the income of the top quintile of pensioners comes from earnings - it's because they're still working."

She continued: "If we've got rising life expectancy and if we've got an ageing population, it is good news that some of these younger pensioners are either still working or have got more income, because they're going to live a lot longer than you would have expected.

"And then it's not going to be inevitable that as you get into your 80s and 90s you're bound to be very poor, which has unfortunately been the case in the past too often."

The committee heard that around 5.4% of GDP is spent on the state pension and pension credit as well as other benefits such as winter fuel payments.

Over the next 50 years the Government expects that to increase to 7.3%, based on current policy and taking factors such as changes to state pension age and the triple-lock into account.

Currently, around 13 million people receive the state pension, but by 2065 the figure is expected to be around 19 million.

Asked if she sees an end point for the triple-lock, Baroness Altmann said: "There is absolutely no doubt we are 100% committed, the triple-lock will remain in place until 2020. There is no change in that whatsoever. The policy thereafter is up to the future government." 

She continued: "For 20 years the state pension income fell significantly behind the rest of the population and we're trying to build that back up again. It reached a record low in 2008/09. I think that was not acceptable and I'm very pleased that we are increasing that level now and we will continue to do so."