Research from Standard Life is breaking down the benefits of investing £4,000 into pension planning in lieu of a lifetime ISA
Savers currently using Lifetime ISAs for retirement planning could see their pension pots grow by an additional £180,000 if they redirect their annual contributions following the Government's proposed reforms.
Ministers are expected to strip away the retirement-saving function from LISAs, replacing them with a first-time buyer ISA focused solely on helping people onto the property ladder.
Fresh analysis from Standard Life demonstrates that channelling the £4,000 yearly LISA allowance into a pension instead offers a more powerful route to building wealth for later life.
The findings come as more than 1.2 million LISA holders face decisions about their long-term savings strategy.
The vast majority of these accounts contain balances below £25,000, reflecting their typical use by younger savers building towards property deposits or early retirement funds.
At the other end of the spectrum, 50 account holders have accumulated more than £100,000 in their LISAs. The dual-purpose nature of these accounts has seen many Britons use them both for getting onto the housing ladder and preparing for later life.
With proposed changes set to eliminate the retirement element, savers must now reassess how these products fit their financial plans.
Standard Life's calculations paint a clear picture of the potential gains from pension contributions.
A worker beginning their career at 22, earning £25,000 annually and paying minimum auto-enrolment rates of five per cent employee and three per cent employer contributions would accumulate roughly £210,000 by age 68, adjusted for inflation.
However, adding £4,000 each year to their pension from age 22 until 49, mirroring the current LISA contribution window, could see that figure rise to approximately £390,000.
This represents a difference of around £180,000 compared to those relying solely on minimum workplace pension contributions.
Mike Ambery, retirement savings director at Standard Life, said: "Planning for retirement is a much longer-term journey, often spanning decades, and where investment growth plays a far bigger role.
"So there is a strong case for separating out these two goals as saving for a home and saving for retirement involve very different timeframes and investment considerations."
He noted that while LISAs provide a 25 per cent Government bonus, pension tax relief is linked to income tax rates.
Higher-rate taxpayers therefore receive 40 per cent relief, significantly outstripping the LISA bonus. Employer contributions also boost pension pots in ways that LISAs simply cannot match.
