Potential pitfalls of the Lifetime Isa – Royal London
By Kirsten Hastings, 14 Jun 16
To be introduced in the UK in April 2017, the Lifetime Isa (Lisa) is intended to incentivise people to save for their first home, their retirement, or both. But research published by the independent Pensions Policy Institute (PPI), sponsored by Royal London, compares the tax-free savings scheme with its international counterparts and highlights some challenges that may arise.
Early Access: In New Zealand it is possible to withdraw savings from a KiwiSaver (the country’s auto enrolment scheme) for a first home purchase provided that at least NZ$1,000 (£498) remains in the account and the individual has been a member for at least three years.
People can withdraw a maximum of NZ$20,000, depending on the type of home purchased and the length of scheme membership. Housing New Zealand, which provides housing to vulnerable people, is responsible for determining eligibility and administering the grants.
In 2015, 1.8% of New Zealand’s circa 2.5 million KiwiSaver members took advantage of the first home early access withdrawal opportunities.
Taxation: Contributions to private pensions are Taxed – Taxed – Exempt (TTE).
Investment Strategy: The asset allocation of KiwiSaver funds is relatively conservative, particularly when considered in light of the fact that two thirds of members are aged under 45. There are 14% of KiwiSaver members in conservative default funds, while 43% of the rest have selected conservative, cash, or fixed interest funds.
According to PPI, New Zealand’s early access system may have led to more conservative investment approaches in order to limit volatility and maintain funding levels for early withdrawals.
Adequacy: The impact of early access on adequacy of retirement income is less of a concern in New Zealand than in the UK, as the residency-based state pension is 40% of average working earnings. In contrast, the UK’s new State Pension is around 24%.
Tags: Australia | Canada | New Zealand | Pension | Royal London | Singapore | Steve Webb | US
