LISA0215
About NatWest Cushon
NatWest Cushon is part of the NatWest group and is a fintech workplace pension and savings provider using its leading financial technology to engage savers and empower them to build a better financial future.
NatWest Cushon offers pension and savings products via a mobile app that provides a
personalised experience, making it easy for customers to manage their money and invest in a way that aligns with their personal goals and beliefs.
With a solution that integrates with payroll and benefit platforms, NatWest Cushon's products are delivered via the workplace to reach as many savers as possible with 627,000 savers and nearly
£3bn assets under management. More than 22,000 employers currently use NatWest Cushon to
help enhance the financial wellbeing of their workforce by providing employees with a simple and convenient way to save into pensions, ISAs and other products direct from pay.
NatWest Cushon is the trading name of Cushon Group Limited. We offer a Lifetime ISA as part of our workplace offering.
NatWest Cushon has offered the Lifetime ISA as a workplace savings product since its inception in 2017 and therefore welcomes the opportunity to respond to this call for evidence.
Fundamentally, we believe the LISA is a fantastic product, particularly attractive to savers looking to get on the housing ladder. However, perceived complexity and the penalty for unauthorised
withdrawals create a barrier to take-up.
In addition, its attractiveness as a complementary – or indeed an alternative – pension product,
especially for basic rate taxpayers and/or the self-employed, is overlooked by consumers and is a missed opportunity for Government to encourage saving and better engage younger people with saving for later life.
Our main recommendations are summarised as follows:
For basic rate taxpayers, the LISA is an attractive alternative to a pension for later life savings. The bonus is effectively equivalent to pensions tax relief, funds are accessible tax- and penalty-free from age 60, and accessible before age 60 (albeit, currently, with a 6.25% penalty).
It’s this latter point that can make a big difference to both the take-up rate and the amount saved. Younger people want to save more money into their pension, but the lock-in is a
barrier. It’s a question of what happens if they hit financial problems? Research we commissioned in February 2023, conducted by Censuswide with a sample of 2000
employees, found that more than half of employees (59%) agree that pensions need to do more than just provide for retirement, and more than two thirds (67%) think that they should have the ability to draw some money before retirement, if needed.
More than 1 in 3 (34%) employees agreed that they would engage more with their pension if they had access to money before retirement, if they needed it.
The withdrawal penalty should be removed by reducing the current 25% withdrawal charge to 20%. The current 25% charge has an implicit 6.25% penalty, which creates complexity and a barrier to people saving. Removing this penalty will encourage greater take-up.
Our research shows that it creates both a direct and an indirect barrier to take-up.
People understand that the bonus is given in return for locking savings away until the age of 60 (unless purchasing the first home). However, people should not be penalised (i.e.
fined) for withdrawing their own money.
If the policy objective is to discourage people from withdrawing money, other than for the intended purpose, we believe that repaying the bonus is sufficient deterrent.
The house price cap should be removed. Although its impact is not universal, it creates a
perception of complexity. Although the UK-wide average house price is well below the cap, there are areas in the UK, especially London, where this average is much higher.
The average deposit for a first-time buyer, according to Halifax, is now over £50,000 (£109,000 in London), which has more than doubled in 10 years. To reflect this, we
believe the £4,000 limit should be increased to account for historical inflation and then linked to inflation going forward.
For First Home Purchase
Fundamentally, the LISA is a fantastic product, particularly attractive to savers looking to get on the housing ladder, but perceived complexity and the penalty create a barrier to take-up.
Demand is there and product awareness levels are high, but take-up rates remain relatively low.
In research we commissioned in May 2021, conducted by Censuswide with a sample of 2,022 employees, 86.06% of respondents aged 40 and under agree that they would be interested in a product that helped them save for their first home or/and retirement, and 68% had heard of the LISA.
For those who are aware of the LISA but have not taken one out, reasons cited include accessibility concerns, complexity and penalties.
Complexity is something to be avoided. The same research shows that people are more likely to save their money in easily understood and easily accessible products – savings (54.04%), bank accounts (40.30%), Cash ISAs (28.65%) – than they are in perceived complex products such as the Lifetime ISA (7.76%).
As a Pension
In our view most savers use a LISA as a product to get on the housing ladder, rather than as a pension product. The maximum eligibility age of 40, as well as the
contribution/bonus cessation age of 50, detracts from the LISA’s positioning and undermines its appeal as a pension product. Consideration should be given to these being increased.
Despite this, we think the LISA is a valuable complementary product to a workplace pension for basic rate taxpayers (for who the bonus is effectively equivalent to pensions tax relief), particularly for those who have maxed out on their employer contribution and
wish to save more for retirement, while still maintaining access to their funds before age 55 if needed. Effectively, a side car solution with a focus on retirement.
It is also an attractive option for the self-employed to save for retirement.
The issue, for us, is low awareness of the product for pension funding. However, we think this could be significantly improved with the implementation of Targeted Support,
enabling providers like us to better inform and direct consumers.
As a qualifying alternative Auto Enrolment pension product
For basic rate taxpayers, the LISA is an attractive alternative to a pension for later life savings. The bonus is effectively equivalent to pensions tax relief, funds are accessible tax- and penalty-free from age 60, and accessible before age 60 (albeit, currently, with a 6.25% penalty).
It’s this latter point that can make a big difference to both the take-up rate and the amount saved. Younger people want to save more money into their pension, but the lock-in is a
barrier. It’s a question of what happens if they hit financial problems? Research we commissioned in February 2023, conducted by Censuswide with a sample of 2000
employees, found that more than half of employees (59%) agree that pensions need to do more than just provide for retirement, and more than two thirds (67%) think that they should have the ability to draw some money before retirement, if needed.
More than 1 in 3 (34%) employees agreed that they would engage more with their pension if they had access to money before retirement, if they needed it.
An option for members who are paying in minimum contributions and have maxed out on their employer contributions, or potentially for people not in auto enrolment.
Given the minimum withdrawal age of 60 and the product’s launch date in 2017, we still have another 12 years before we can really test how easily customers transition.
However, for those who wish to continue to save after purchasing their first home, the
transition process is easy. That said, we would argue that the contribution and bonus limit of age of 50 is a barrier to people continuing to save post-first home purchase.
The Lifetime ISA is aligned to first-time buyer initiatives, such as the First Homes Scheme and Mortgage Guarantee Scheme, and there is no other financial product available that is focused on first-time home purchase.
Yes, please see our response to question 1.
Definitely not. As we have argued under previous questions, the LISA is fundamentally a good product that needs updating and simplifying to better meet the demands of
consumers.
Yes, the withdrawal penalty should be removed by reducing the current 25% withdrawal charge to 20%. The current 25% charge has an implicit 6.25% penalty, which creates complexity and a barrier to people saving. Removing this penalty will encourage greater take-up.
As per research above, it creates a direct and an indirect barrier to take-up – directly in terms of the penalty and indirectly in terms of perceived complexity.
People understand that the bonus is given for a specific reason, and so, if not used in that way, the bonus is sacrificed. However, people should not be penalised for withdrawing
their own money.
If the policy objective is to discourage people from withdrawing money, other than for the intended purpose, we would argue that the bonus sacrifice is a sufficient deterrent.
Back in 2020, in response to financial difficulties brought on by the pandemic, the
Government temporarily reduced the withdrawal charge to 20%, which effectively meant the removal of the penalty.
Five years on, well-intended savers may well hit financial difficulties, and to penalise them for withdrawing their own money at an already difficult time is unfair.
No, on the contrary. As we have argued above, consideration should be given to making the Lifetime ISA an approved auto enrolment pensions product.
We would argue that the house price cap should be removed altogether. Although its impact is not universal, it again creates perceived complexity. While the UK-wide average house price is well below the cap, there are areas in the UK, especially London, where it is much higher.
At the very least, the cap should be increased to account for historic inflation since the launch of the LISA and thereafter linked to inflation.
The average deposit for a first-time home purchase, according to Halifax, is now over
£50,000, which has more than doubled in 10 years. To reflect this, we believe the limit should be increased to account for historical inflation and then linked to inflation going forward.
We believe the Lifetime ISA should be considered as part of a bigger review of the whole ISA regime, with a view to simplification and better product alignment. For instance, given its focus on younger savers looking to get on the housing ladder, it would make sense that funds arising from a maturing JISA should be allowed to be transferred into a LISA, even if there were restrictions on the amount of bonus on this initial transfer.
February 2025