Low awareness of LISAs amongst Millennials sets
up danger of miss-buying, finds new study commissioned by
Millennials rely on ‘Bank of Mum & Dad’ for nearly a
quarter of deposits on first home purchase nationally,
in London ‘parental dependency’ stands at over 30%**
A combination of lack of understanding of the
Lifetime ISA (LISA) and the fact that first home
purchase is not top of Millennials’ list of savings
priorities, could lead to widespread miss-buying or
miss-selling of LISAs by the target group, according to
a nationwide study conducted in December by Opinium
Research for financial services technology business
Dunstan Thomas. A third (32%) of Millennials questioned
said they are likely to take out a LISA from this April.
Erroneously, 27% thought that the LISA may be a more tax
efficient retirement savings vehicle than an
Auto-Enrolled workplace pension.
Low awareness of LISA amongst target audience.
The survey which was completed by a thousand Millennials
aged 23-36 years old, found that 50% of this generation
had no awareness of the LISA or had ‘heard of it but did
know what it was for’ prior to being questioned. The
Government’s new targeted savings product, first
announced in the 2016 Budget and due to go live in less
than three months’ time on 6th April 2017, is designed
to support people under the age of 40 to save up for a
deposit on their first home by giving them a 25% annual
government bonus on all funds put into a LISA, up to
£4,000 total contribution each year.
there are catches which, given levels of awareness and
Millennials’ real savings priorities uncovered by this
survey, will worry the regulator and advisers alike.
Firstly, after the first year of holding a LISA, anyone
withdrawing funds for any reason, other than providing a
deposit for your first home, suffering a terminal
illness or reaching retirement age will pay a 6.25%
penalty for so doing.
Take the example of an
individual who invests £800 in a LISA, so receiving a
£200 government bonus. Early withdrawal will generate a
charge of 25% of total funds, which is £1,000 in this
instance, so that they will only have £750 left to
transfer out – creating a savings loss of 6.25%.
Saving for deposit on 1st home less important than
However, Millennials’ savings habits suggest savings for
a deposit on their new home is not a top savings
priority. Top of the list of reasons to set money aside,
cited by 38% of Millennials who currently save, is to
build ‘a rainy-day savings fund’, perhaps to combat
redundancy or pay for major car repairs. Their second
priority is saving for a holiday, for 29% of young
savers. While saving for a deposit on their first home
comes in third – rated by only a quarter (26%) of saving
Millennials. While 16% are prioritising saving up for
large household items and 12% are saving for a new car.
This leaves very little left over for long-term
saving for retirement: just one fifth (19%) of
Millennials’ who save are doing so specifically for
retirement to top up an existing pension scheme.
Millennials working full-time save on average £191.33
per month. £161.65 per month is put aside by Millennials
across all socio-economic groups. Those working
part-time (up to 29 hours per week) set aside an average
of £87.42 each month.
Savings levels regionally.
Indicative findings* suggest that the average Millennial
living in Northern Ireland saves the least of all UK
regions – just £58.32 per month, whilst in Wales they
set aside £91.34 in a typical month. However, Londoners’
savings pots are the most bountiful with £208.52 being
set aside each month.
Reliance on Bank of Mum & Dad for deposit on 1st
home rises with house prices.
The reliance on the ‘Bank of Mum and Dad’ is more
accentuated the further south you travel into areas
where housing is generally more expensive. So, in the
Southeast 28.4% of deposits on first home purchase by
millennials comes from parent’s or partner’s parents
savings or inheritances, and in London that percentage
is even higher at 30.23%, whereas in Yorkshire and
Humberside 22.2% of deposits come from the Bank of Mum &
Dad, Scotland it is lower still at 15.7% and in Northern
Ireland it’s 14.6%. The average Bank of Mum & Dad
dependency for getting onto the housing ladder across
the UK is now 23.7%.
Over half of younger millennials are unrealistic
about when they will be able to afford first home.
Nine in every 10 (86%) 23-29 year olds in the UK who
don’t already own a home but plan to, think they will be
taking delivery of the keys to their first home by the
time they are 40. More realistically, 64% of older
Millennials within this group (aged 30-36 year) think
they will be able to afford their first home by age 40.
Unfortunately all millennials questioned are
over-optimistic as, according to the Institute of Fiscal
Studies (IFS) study of the economic circumstances of
different generations, only 40% of young people born in
the 1980s (aged 28-37 today) own their own place today.
The Dunstan Thomas Millennials Study found that 36% of
this total sample (up to age 36) were home owners,
putting home ownership by this sample in line with the
LISA creates retirement saving option confusion.
LISA savings can also be accumulated for retirement
purposes, and can be withdrawn from age 60 for that
purpose. But here too there are catches. For example,
you are not allowed to continue to add to your LISA-held
retirement pot after the age of 50 - often exactly the
age when you are finally able to start accumulating
additional savings for retirement. In addition, in a
LISA you do not get access to key benefit of a workplace
pension scheme including your employer’s contribution
which could well double your saving pot. Again,
awareness of the relative merits of Automatic Enrolment
workplace pension scheme versus LISA saving, were not
well understood by the nationally representative group,
the Dunstan Thomas survey found.
A quarter (25%)
of Millennials indicated that they might take out a LISA
as a retirement savings product and 27% even thought
that LISAs would be a more tax efficient retirement
savings vehicle than a workplace pension. A further 38%
simply did not know which product would be a more tax
efficient long-term savings product, suggesting that
two-thirds (66%) of the sample are either ill- or
miss-informed in this area. The scope for miss-buying or
miss-selling looks significant given these numbers.
Unreliable savings habits of 30-somethings as wallet
Again, older Millennials are struggling with their
savings habits as pressure on their wallets increases in
their 30s: 40% of 30-36 year olds are either saving
irregularly or not at all; while 35% of 23-29 year olds
are failing to put some cash away regularly.
39% of older Millennials (aged 30-36) and 27% of younger
Millennials (aged 23-29), said that they were unlikely
to buy a LISA. The net LISA-rejection rate across all
Millennials questioned stood at a third (33%).
Auto-Enrolment opt outs set to rise to 20%.
20% of Millennials said that they would probably opt out
of an auto-enrolment workplace pension (nearly twice the
current opt out rate), when given the option. Many SME &
micro- businesses hit their staging date this year.
Four-fifths (82%) of 30-36 year olds who plan to
build a retirement pot think they will have built a
sizeable retirement pot by the age of 65, whereas
younger Millennials aged 23-29 are again more
optimistic: 86% thinking they will have addressed this
need by the current state retirement age of 65. Less
than one fifth of Millennials who are currently saving
(19%) are consciously doing any retirement saving right
now above and beyond a specified pension scheme.
Adrian Boulding, Director of Retirement Strategy at
Dunstan Thomas, explained: “Our Millennials Study
results show that there is clear danger of the
Millennial generation buying the LISA for the wrong
reasons. To those of us in the industry it might look
like a highly flexible savings vehicle geared to one of
their financial goals – getting on the housing ladder.
But our findings indicate awareness of the product
amongst the target audience is low and they may well
decide they want to dip into their LISA to fund a period
between jobs or even a big holiday, only to find they’ve
“Worse, they could see the LISA as
their way to save for retirement and consequently opt
out of their workplace pension scheme which is, in the
main, a much better way to save for retirement than a
LISA because pensions enjoy matching employer
The Dunstan Thomas survey also
probes preferred capabilities and functionality that
Millennials would most like to see in new smart
phone-ready, highly interactive apps which Dunstan
Thomas is developing for product providers. The next
generation of customer engagement tools will help
consumers make better financial choices engendering
healthier saving habits, while enabling providers to
understand and engage more deeply with their
* This finding is indicative
because the sample size for this question in regions
specified was under 50 people.
** The research
contains a regional breakdown of reliance of ‘Bank of
Mum & Dad’, based on estimated or actual (if already
purchased their first home) percentage of deposit paid
for first home by the following sources: parents’
savings, partner’s parents’ savings, inheritance,
partner’s inheritance. The split is as follows is order
of level of dependency on Bank of Mum and Dad:
London – 30.23% comes from the ‘Bank of Mum & Dad’
Southeast – 28.39%
3. Wales – 26.88%
4. East of
England – 24.79%
5. Southwest –23.51%
Midlands – 23.5%
7. Northeast – 22.52%
8. Yorks &
Humber – 22.22%
9. West Midlands – 21.10%
Northwest – 21.97%
11. Scotland – 15.66%
Northern Ireland – 14.62%