The Lifetime ISA (LISA) is a “dangerous distraction” and could trigger a misselling scandal, according to former pensions minister Baroness Altmann.
She told a House of Lords debate that the government savings scheme could “undermine pensions and increase future poverty”.
She added that the LISA was “okay” to use for buying a home but “when masquerading as a pension, this product is dangerous”.
According to the former minister, the product “will not last a lifetime” despite its name and is “likely to be spent at around age 60”.
“This new product has the wrong behavioural structure and I am warning now that it risks becoming a new misselling scandal in coming years.”
Treasury minister Baroness Neville-Rolfe defended the LISA, saying it is designed to run alongside pensions rather than replace them.
“We are fully committed to supporting people through the pensions system.
“Auto-enrolment will help ten million people to be newly saving or saving more by 2018.
“The Lifetime ISA is designed to complement that. It gives young people more choice in how they save for the long term. It is not a replacement for pensions.”