The Government is overlooking risks to its new Lifetime ISA, according to a leading independent trustee and governance service provider.
Pitmans Trustees (PTL) has responded to the Financial Conduct Authority consultation paper: Introduction of the Lifetime ISA (LISA).
The organisation said although it welcomes the LISA, it has concerns that the proposal overlooks risks that could have a negative impact on the outcome for some consumers.
Richard Butcher, PTL managing director, said the LISA has two different functions, and that could cause problems in the long term.
He said: "Any tool designed to encourage long term savings is a positive development in the context of declining pension adequacy."
"But the LISA is attempting to fill two diametrically opposing roles; a tool for short and medium term investment saving for a house deposit, and a tool for long term savings toward retirement.
"These two objective imply significantly different investment strategies however, and if consumers change their objective for LISA, especially if they don't understand investments, the strategy will no longer be relevant and may do damage to the expected outcome of long term savings."
PTL said it recognises the FCA's attempts to mitigate the risk using financial advice, but believes that few people will make informed decisions as a result.
"In our experience in the context of workplace pensions, even with disclosure, education, and relevant reminders, only a small proportion of consumers will be able to make informed investment decisions," Butcher said.
PTL has put forward a solution, a formal independent governance function built into the delivery mechanism, similar to those for workplace pensions.
It said for pensions, this function is responsible for driving value for money for members, challenging and controlling costs, ensuring core financial transactions are processed promptly and accurately, and that investment strategies are likely to be and remain appropriate.
"We hope the FCA will take this into consideration so that consumers will be reaping the intended benefits of LISA," Butcher added.
First published 03.02.2017