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The risks and rewards of Lisa

The FCA has beefed up its risk warnings on the Lifetime Isa

The lifetime individual savings account (Lisa) launches on 6 April and the regulator has issued warnings to savers, who risk losing out on employer pension contributions if they pay into the Lisa instead of a workplace pension.

The Lisa allows individuals aged between 18 and 40 to save up to £4,000 each year and receive a 25 per cent government bonus on contributions, if used to buy a first home or if the pot is untouched until age 60. If the money is withdrawn before age 60 for anything other than a property purchase, a 25 per cent exit charge will apply, although this charge does not apply in the 2017-18 tax year.

Critics argue that the nature of the Lisa, as both a retirement tool and first-time buyer boost, means consumers need to be warned about the risk of missing out on employer pension contributions. So the Financial Conduct Authority (FCA) has agreed to update the Lisa rules with risk warnings to reflect that hazard. In a policy update released on 7 March, the regulator said: "We acknowledge there may be circumstances where a retail client is saving into a personal pension plan to which their employer contributes, and that choosing to save into a Lisa in preference to such a scheme might cause that consumer to forfeit employer contributions to that scheme. Therefore, we have extended our suggested risk warning about the potential loss of employer contributions to include personal pension schemes."

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