The Lifetime ISA is here, and the critics are not getting it.
You might say LISA, I say Lisa
Do we pronounce it LISA, simply by adding a L to the word ISA or do we say Lisa, as in the name?
I know most people are going for option one, but I prefer Lisa.
It is just that if you read the newspapers today, it feels a bit more like Mona (or moaning), Lisa.
Pension or LISA
Some say that for saving for your retirement, a pension scores. Such a critique misses the point.
The pension industry does not know the first thing about communication. It’s not entirely it’s fault, it is shackled by the regulator.
As a result, the best I can say for an ad selling a pension, or a salesman trying to pitch a new pension to you, is that these things are great for solving insomnia.
But that is a problem, and it is a problem for more than one reason. At least one of these reasons is not well understood, although it is hardly complicated.
For one thing, the regulator, in an effort to cut risk, insists that a pension has a certain level of exposure to low risk assets, such as cash. But that is a problem.
The worst time to buy shares is at the top of a market, the best time to buy is at the bottom. Rules set by regulators mean that pension funds tend to buy and sell at precisely the wrong time.
For this reason, for much of this century – a period which has seen two major stock market crashes – the performance of the pension industry has been lousy.
Why fun is important
But we live in an age when technology is set to widen the gap between the reward to labour and the reward to capital.
This may lead to growing inequality with all kinds of nasty implications for political instability.
So, policy makers need to find a way to encourage ordinary citizens to own more capital.
Pensions achieve this up to a point, but pension funds are separated from the user by a wall of regulation, and frankly a presentation style that is way too complex.
This, in turn, alienates people from their investment.
It creates a divide between business and consumers – whereas in a shareholding democracy, where the public are closer to their investments, this psychological gap between business and consumers closes.
In fact, I go further. In this age of technology created inequality, making investing fun, and encouraging the public to take more interest in the issues that affect investing, may even be a social imperative.
Drip feed LISA
But what I also like about LISA is the £4,000 a year limit, which the government tops up with an additional £1,000.
All investors know that diversification is important.
But it is less commonly understood that diversification over time matters too. If you pile all your money into shares in one go, then you are indeed vulnerable to a possible stock market crash.
If instead you drip feed your portfolio, and invest say £4,000 a year over ten years, and shares crash in the middle of this period, then you will benefit from the opportunity that emerges after the crash, when shares are cheap.
Saving for a home or a pension
When it comes to saving up for deposit for a home, then it seems to me that LISA has many clear advantages. But, for the reasons stated above, I would say that it is also an appealing option for saving for retirement.
But above all, this is about trusting people with their investment. Sure, there needs to be some rules, and the regulator has to protect people from bad advice, or the dangers of groupthink. But the pension industry seems to hinge on the assumption that people are stupid, need to be protected from their own folly and as result creates an industry which seems to be allergic to good communication and is stifled by self-defeating rules.
With a LISA, the government is saying, within certain limits, lets encourage people to take more interest in their own future.
These views are those of the author alone and do not necessarily reflect reflect the view of The Share Centre, its officers and employees