Young and middle earners most positive about Lifetime ISA and pension reforms

Middle and high earners are most likely to feel that last year’s pension reforms and the recently launched Lifetime ISA have made it easier to save for retirement, new research has revealed.

According to Skipton Building Society, almost half (46%) of those with household earnings of more than £35,000 say that the Lifetime ISA will make it easier for under-40s to save for the lifestyle they want in retirement.

Those with a household income of less than £20,000 are most likely to believe that the new product will make no difference (45% of respondents).

Among those under 40, middle and high earners are also the most likely to take advantage of the new savings programme. Half (49%) of under-40s earning over £35,000 said they were likely to consider opening a Lifetime ISA, compared to 35% of those with a household income of less than £35,000.

Among those aged under 40 who said they were unlikely to consider a Lifetime ISA, nearly a third (30%) said that it was unattractive to them, while 15% said they already use other savings products.

The Lifetime ISA will allow anyone younger than 40 to put away up to £4,000 a year until they are 50. For every £4 people save, the government will give them back £1, a bonus of up to £1,000 a year.

Jacqui Bateson, retirement specialist at Skipton Building Society, said: “There have been numerous significant changes to the pensions system in recent years with the introduction of new products, programmes and freedoms. It’s important to stop and listen to the impact that these changes are having on the way people view retirement.

“Whether you feel optimistic or pessimistic, confused or clear, can have a significant effect on how you approach your retirement savings and the financial decisions you make.”

Pension freedoms were introduced in April last year and allow anyone over the age of 55 to take some, or all of their pension, as a lump sum, with the first 25% paid tax free.

The survey of over 3,000 British adults found that views of the impact of the savings and pensions reforms over the last three years are mixed.

Retirees are more likely to feel that these recent changes have caused confusion about saving than those who are still working, with two in five saying they believe that the changes have made it more difficult for people to understand how to save for retirement.

By contrast, just a quarter (26%) of pre-retirees believe it is more difficult, and the figure falls to just 17% among those aged 18-35.

“Middle and high earners are most likely to believe the reforms have helped to clarify how to save for retirement. More than one in four (27%) of those with a household income of more than £35,000 believe the government’s changes have made it easier to understand, while 35% believe they have made no difference,” said Bateson.

“Our research shows that for younger people and middle earners, the government’s reforms have helped to provide much needed clarity about how to save for retirement. However, this appears to be less true for older people. Those who had planned for retirement throughout their working lives under one system may feel particularly confused when that system ends suddenly. By contrast, younger people are more easily able to take steps to adapt by changing their plans now,” she added.