Latest news with #LISAs
Metro
a day ago
- Business
- Metro
Martin Lewis demands 'critical' action as LISA savers face losing thousands
Martin Lewis has called on the government to fix a 'growing hole' in the Lifetime ISA (LISA) scheme. The Money Saving Expert warns that thousands of first-time buyers are being unfairly penalised by outdated rules. He says that action is 'critical' and must be taken. LISAs were first launched by the Conservative Government in 2017 to help under-40s save for a retirement or first home. You can open one at 18 and put in up to £4,000 a year. The government adds 25% on top — so essentially, it's 'free' money. Since its launch, more than one million people have opened a LISA. If you opened one in 2017, and deposited the maximum £4,000 a year, you'd already have £32,000 of your own savings. The government's extra 25% brings you to £40,000. But despite their popularity, Martin says the scheme is now actively discouraging people from saving. This is due to the fact that the maximum property you can buy with a LISA is £450,000 — a threshold which hasn't budged since it launched nearly a decade ago. If someone then needed to withdraw their LISA money to buy a property over this cap, they'd lose the government bonus completely, and face a 6.25% penalty on their own savings. Fuel your wanderlust with our curated newsletter of travel deals, guides and inspiration. Sign up here. On the maximum £40,000 saved, that's a £2,500 penalty. This money is taken from the saver's own contributions. With house prices soaring, particularly in the south east of England, the Money Saving Expert says more and more people are exceeding the limit. And when that happens, the cost is steep. 'No first-time buyer should be penalised for accessing their LISA savings to buy their first property – as that's what the state, and the marketing, encourages them to do,' Lewis said. 'It's understandable that they don't get the 25% bonus, but they're effectively fined £625 for every £10,000 they've saved. It's unfair, it's unjust, and the rules need changing.' The Money Saving Expert claimed that the current system is putting off a whole generation of hopeful savers. 'This flaw doesn't just hurt those with LISAs,' he said. 'It puts off many young people, especially from lower-income backgrounds, who tend to be more risk-averse, from opening LISAs in the first place.' MPS on the Treasury Committee have been investigating whether LISAs remain fit for purpose. In their new report, they argue that the dual purpose of helping savers prepare for both home ownership and retirement 'makes it more likely consumers will choose unsuitable investment strategies'. 'Cash LISAs may suit those saving for a first home but may not achieve the best outcome for those using it as a retirement savings product,' the report reads. 'As they are unable to invest in higher-risk but potentially higher-return products such as bonds and equities.' Martin, who has highlighted the issue previously, welcomed the report's findings. He said: 'This is something we've banged the drum about for years. So, I'm glad it appears in the Treasury Committee report. More Trending Martin Lewis has campaigned for a reduction in the withdrawal charge to 20%. He said: 'I have no problem with the withdrawal penalty in its own right. I have a problem with it for first-time buyers buying a house. 'We have a succession of young people who are saving in the vehicle they have been encouraged to save in by the state, who are then trying to use their savings to buy a first-time property, but due to house price inflation their property has just tripped above the £450,000 level. 'Then not only do they not get the £1,000 a year bonus they were intended to get, which I understand is legitimate as a threshold, but they are fined by the state effectively 6.25% of their own money in order to withdraw that money to get the cash out.' Martin describes the removal of the charge as a 'small fix', that would have very little cost to the state. He adds that it would encourage many young feel to feel confident about LISAs and that it's 'critical it's dressed'. Do you have a story to share? Get in touch by emailing MetroLifestyleTeam@ MORE: Council tax is set to rise – here's how to save money MORE: How to get money off your supermarket shop at Aldi and Iceland this summer MORE: The holiday scam that could rob you of thousands of pounds
Yahoo
2 days ago
- Business
- Yahoo
Should the Lifetime ISA be replaced? Have your say
MPs have said that the complexity of lifetime individual savings accounts (LISAs) increases the risk of people making poor financial decisions. In a report released on Monday, the Treasury Select Committee said that dual-purpose design of LISAs raises the risk of consumers choosing "unsuitable investment strategies". People are able to use LISAs, which were introduced in 2017, to save for both a first home and retirement, using cash, stocks and shares or a combination of the two. In addition, an inquiry by the cross-party group of MPs highlighted confusion over the 25% LISA withdrawal charge for funds drawn down early, whereby savers lose the government bonus they have received, plus 6.25% of their own contributions. MPs said that this means LISA holders "risk losing a significant part of their savings due to withdrawals to cover unforeseen circumstances". Another issued that was raised was the LISA property price cap of £450,000. If a consumer uses their LISA savings to buy a home above that price then they must pay the 25% withdrawal charge. That price cap has remained unchanged since the LISA's inception in 2017 but average house prices in the UK have risen more than 30% since then, with the cost of a home in London hitting £564,000. Rachael Griffin, tax and financial planning expert at Quilter, said that the Treasury Committee's report "reflects many of the issues we raised in our evidence, particularly the view that the product is fundamentally flawed and not always delivering good outcomes for savers." Read more: Key questions to ask yourself to plan for a comfortable retirement She said that the £450,000 property price cap "no longer deals with the reality of the ever more expensive housing market. Many who have saved diligently find they cannot use their LISA for the property they need without facing a financial penalty." Griffin added: "This report should be the catalyst for serious reform. The Lifetime ISA does not sit comfortably within the wider savings system and trying to make it serve two purposes has only added to the confusion. There is a clear opportunity to replace it with simpler, more targeted tools that give people the right support whether they are saving for a home or planning for later life. This should be a major focus of Labour's upcoming ISA simplification programme this summer." At the same time, Helen Morrissey, Yahoo Finance UK pensions columnist and head of retirement analysis at Hargreaves Lansdown (HL), said: "The sweet spot of the LISA can rest in its ability to boost retirement savings among the self-employed." She pointed out that the HL Savings and Resilience Barometer found that only 21% of self-employed households are on track for a moderate retirement, compared to 36% of households overall. "It's a pressing issue that needs to be resolved and the LISA just might help us close the gap," she said. Morrissey added: "The report says that the LISA seems to work well with the self-employed and with further tweaks it could help further. We have long argued that if the penalty could be reduced from 25% to 20%, this could act as a further incentive for the self-employed to get a LISA, as they know they would not be losing a chunk of their own money in the event of early access. "We also believe that removing the age 40 limit on opening a LISA would open the product up even further given the fact that many people do not become self-employed until later in life." Do you think the LISA should be replaced? Vote in the poll below. Yahoo UK's poll of the week lets you vote and indicate your strength of feeling on one of the week's hot topics. After the poll closes, we'll publish and analyse the results each Friday, giving readers the chance to see how polarising a topic has become and if their view chimes with other Yahoo UK readers. Read more: What to watch this week: UK shop prices, US employment, Constellation Brands, M&S and Sainsbury's Global economy to slow amid 'most severe trade war since 1930s', says Fitch UK economy grew 0.7% in first quarter of the year
Daily Record
3 days ago
- Business
- Daily Record
New report suggests Lifetime ISAs may need to carry a warning for some people
Savers must make their first payment into their LISA before the age of 40 and can add up to £4,000 per year until they reach 50. The complexity of Lifetime ISAs could increase the risk of savers making poor financial decisions and the products may need to carry warnings for some people, according to a committee of MPs. The savings accounts enable people to save for their first home or their retirement in one pot. But the Treasury Committee said the dual-purpose design of the Lifetime ISA, or LISA, may be diverting people away from more suitable products. MPs found that the objectives to help people save for both the short and long term make it more likely that people will choose unsuitable investment strategies. LISAs held in cash may suit those saving for a first home, but may not achieve the best outcome for those using accounts as a retirement savings product, as they are unable to invest in higher-risk but potentially higher-return products such as bonds and equities, the committee said. It also described current rules penalising benefit claimants as 'nonsensical'. Under the current system, any savings held in a LISA can affect eligibility for Universal Credit or Housing Benefit, despite this not being the case for other personal or workplace pension schemes, the committee said. The report said: 'The Government provides higher levels of contribution through tax relief to many other pension products that are not included in the Universal Credit eligibility assessment, such as workplace pensions and Sipps (self-invested personal pensions). Treating one retirement product differently from others in that regard is nonsensical.' The report added: 'If the Government is unwilling to equalise the treatment of the Lifetime ISA with other Government-subsidised retirement savings products in Universal Credit assessments, Lifetime ISA products must include warnings that the Lifetime ISA is an inferior product for anyone who might one day be in receipt of Universal Credit. 'Such warnings would guard against savers being sold products that are not in their best financial interests, which might well constitute mis-selling.' Savers can put in up to £4,000 into a LISA each year, until they reach 50. They must make their first payment into their LISA before the age of 40. The UK Government will add a 25% bonus to LISA savings, up to a maximum of £1,000 per year. People can withdraw money from their LISA if they are buying their first home, aged 60 or over or terminally ill with less than 12 months to live. People withdrawing money from a LISA for any other reason face a 25% withdrawal charge, and can end up with less money than they put in. The report said: 'The withdrawal charge of 25% is applied to unauthorised withdrawals, causing LISA holders to lose the Government bonuses that they have received, plus 6.25% of their own contributions. 'Several witnesses described that loss of 6.25% as a 'withdrawal penalty'.' There are also restrictions on when LISAs can be used to buy a first home, including that the property must cost £450,000 or less. The report said: 'Many people have lost a portion of their savings due to a lack of understanding of the withdrawal charge or because of unforeseen changes in their circumstances, such as buying a first home at a price greater than the cap. 'However, the case for reducing the charge must be balanced against the impact on Government spending. The Lifetime ISA must include a deterrent to discourage savers from withdrawing funds from long-term saving.' It also added: 'Before considering any increase in the house price cap, the Government must analyse whether the Lifetime Isa is the most effective way in which to spend taxpayers' money to support first-time buyers.' The committee noted that in the 2023/24 financial year, nearly double the number of people made an unauthorised withdrawal (99,650) compared to the number of people who used their LISA to buy a home (56,900). This should be considered a possible indication that the product is not working as intended, the committee said. At the end of the tax year 2023/24, around 1.3 million LISA accounts were open, the report said. The Office for Budget Responsibility predicts spending on bonuses paid to account holders will cost the Treasury around £3 billion over the five years to 2029/30 - and the committee questioned whether this product is the best use of public money given the current financial strain. MPs also raised concerns that the product may not be well enough targeted towards those in need of financial support and could be subsidising the cost of a first home for wealthier people. It said the data on this issue remains unclear. The report also highlighted the benefits of certain elements of the LISA, including being an option for the self-employed to save for retirement. Treasury Committee chairwoman Dame Meg Hillier said: 'The committee is firmly behind the objectives of the Lifetime ISA, which are to help those who need it onto the property ladder and to help people save for retirement from an early age. The question is whether the Lifetime ISA is the best way to spend billions of pounds over several years to achieve those goals. 'We know that the Government is looking at Isa reform imminently, which means this is the perfect time to assess if this is the best way to help the people who need it. 'We are still awaiting further data that may shed some light on who exactly the product is helping. What we already know, though, is that the Lifetime Isa needs to be reformed before it can genuinely be described as a market-leading savings product for both prospective home buyers and those who want to start saving for their retirement at a young age.' Martin Lewis has long campaigned for reform to LISAs - highlighting that the £450,000 LISA house price limit has remained frozen since it launched in 2017, despite house prices rising significantly since then. This has left some first-time buyers unable to find a suitable property under the limit, and savers buying a home that no longer qualifies are then effectively charged a 6.25% penalty to withdraw funds. The consumer champion gave evidence to the committee on February 26, 2025. Commenting on the report findings, the founder of said: "Lifetime ISAs have worked well for many, but there is a growing hole that needs urgently addressing. No first-time buyer should be penalised for accessing their LISA savings to buy their first property - as that's what the state, and the marketing, encourages them to do. 'Yet that's what happens when young people, priced out by inflation, try to use their LISA savings for a home above the £450,000 threshold (which hasn't moved since LISAs launched in 2017) - as is getting more common in the SE of England. It's understandable that they don't get the 25% bonus, but they are effectively fined 6.25% of their money (so £625 per £10,000 saved) to withdraw it. 'This is unfair, unjust and the rules need changing. If a LISA is used to buy a property above the threshold, there should be no fine, they should get back at least what they put in.' He continued: 'This flaw doesn't just hurt those with LISAs. It puts off many young people, especially from lower income backgrounds, who tend to be more risk averse, from opening LISAs in the first place. 'This is something we've banged the drum about for years. So, I'm glad it appears in the Treasury Committee report. It's a small fix, with very little cost to the state, that would enable and encourage many young people to feel confident about LISAs - and so it's critical it's addressed in the government's imminently expected ISA review."
Daily Mirror
3 days ago
- Business
- Daily Mirror
Martin Lewis issues urgent statement to anyone saving money in Lifetime ISA
The personal finance expert has spoken out after a report said the Lifetime ISA (Lisa) may be diverting people away from more suitable products Martin Lewis has voiced his concerns following a scathing report that labelled a key ISA product as 'confusing' and in need of 'more warnings'. The personal finance guru responded after a group of MPs suggested that the dual-purpose design of the Lifetime Isa, or Lisa, could be leading people astray from more suitable products and causing them to opt for unsuitable investment strategies. The Lifetime ISA (LISA) is a savings account designed to assist individuals aged 18-39 in purchasing their first home or saving for retirement. It provides a 25% government bonus on savings up to £4,000 per annum until the account holder reaches 50. Withdrawals for a first home purchase (up to £450,000) or from age 60 are tax-free, while other withdrawals incur a 25% government charge. Mr Lewis, a long-standing critic, has pointed out that the £450,000 LISA house price limit has remained static since its inception in 2017, despite a significant increase in house prices during this period. This has resulted in some first-time buyers struggling to find a suitable property within the limit, and savers who purchase a home that no longer qualifies are effectively hit with a 6.25% penalty to withdraw funds. The founder of weighed in on the report this morning, highlighting a significant issue with Lifetime ISAs: "Lifetime ISAs have worked well for many, but there is a growing hole that needs urgently addressing. No first-time buyer should be penalised for accessing their LISA savings to buy their first property - as that's what the state, and the marketing, encourages them to do." "Yet that's what happens when young people, priced out by inflation, try to use their LISA savings for a home above the £450,000 threshold (which hasn't moved since LISAs launched in 2017) - as is getting more common in the SE of England. It's understandable that they don't get the 25% bonus, but they are effectively fined 6.25% of their money (so £625 per £10,000 saved) to withdraw it. This is unfair, unjust and the rules need changing. If a LISA is used to buy a property above the threshold, there's should be no fine, they should get back at least what they put in. "And this flaw doesn't just hurt those with LISAs. It puts off many young people, especially from lower-income backgrounds, who tend to be more risk-averse, from opening LISAs in the first place. "This is something we've banged the drum about for years. So, I'm glad it appears in the Treasury Committee report. It's a small fix, with very little cost to the state, that would enable and encourage many young people to feel confident about LISAs - and so it's critical it's addressed in the government's imminently expected ISA review." The Treasury Committee has raised concerns that the dual-purpose design of the Lifetime Isa, or Lisa, might be leading savers astray from more appropriate financial products. The MPs highlighted that the Lisa's twin goals of supporting short and long-term savings could result in people opting for investment strategies that don't suit their needs. For those saving towards buying their first home, cash Lisas may be appropriate, but they fall short for individuals looking to use them as a retirement savings vehicle, where the inability to invest in higher-risk, potentially higher-return options like bonds and equities is a disadvantage, according to the committee. Furthermore, the committee criticised the current regulations that penalise benefit recipients as "nonsensical". They pointed out that under the existing rules, any funds in a Lisa can impact one's eligibility for universal credit or housing benefit – a stark contrast to other pension schemes such as workplace pensions and Sipps (self-invested personal pensions), which are not considered in the same way for benefits assessments. The report stated: " The Government provides higher levels of contribution through tax relief to many other pension products that are not included in the universal credit eligibility assessment, such as workplace pensions and Sipps (self-invested personal pensions). Treating one retirement product differently from others in that regard is nonsensical." The report urged caution, stating: "If the Government is unwilling to equalise the treatment of the Lifetime Isa with other Government-subsidised retirement savings products in universal credit assessments, Lifetime Isa products must include warnings that the Lifetime Isa is an inferior product for anyone who might one day be in receipt of universal credit." It warned that without such alerts, "Such warnings would guard against savers being sold products that are not in their best financial interests, which might well constitute mis-selling." The Lisa scheme allows savers under 50 to put away up to £4,000 each year, securing a generous 25% bonus from the Government. The incentive can amount to as much as £1,000 annually until the saver turns 50. Withdrawals from a Lisa are free for certain life events like purchasing a first home, reaching 60, or facing terminal illness with less than a year to live. However, those withdrawing funds for other reasons will be hit with a stiff 25% fee, potentially ending up with even less than they invested. The report outlined: "The withdrawal charge of 25% is applied to unauthorised withdrawals, causing Lisa holders to lose the Government bonuses that they have received, plus 6.25% of their own contributions." "Several witnesses described that loss of 6.25% as a 'withdrawal penalty'." Lisas also come with property price caps for those looking to buy their first home; homes over £450,000 aren't eligible under the scheme. The report highlighted concerns, stating: "Many people have lost a portion of their savings due to a lack of understanding of the withdrawal charge or because of unforeseen changes in their circumstances, such as buying a first home at a price greater than the cap. However, the case for reducing the charge must be balanced against the impact on Government spending. The Lifetime Isa must include a deterrent to discourage savers from withdrawing funds from long-term saving." It further cautioned: "Before considering any increase in the house price cap, the Government must analyse whether the Lifetime Isa is the most effective way in which to spend taxpayers' money to support first-time buyers." The committee observed a worrying trend in the 2023-24 financial year, noting that nearly double the number of people made an unauthorised withdrawal (99,650) compared to those who used their Lisa to purchase a home (56,900), suggesting the product may not be fulfilling its purpose. By the close of the tax year 2023-24, there were approximately 1.3 million Lisa accounts in existence, according to the report. Dame Meg Hillier, chairwoman of the Treasury Committee, expressed support for the scheme's aims but questioned its efficiency: "The committee is firmly behind the objectives of the Lifetime Isa, which are to help those who need it onto the property ladder and to help people save for retirement from an early age. The question is whether the Lifetime Isa is the best way to spend billions of pounds over several years to achieve those goals. "We know that the Government is looking at Isa reform imminently, which means this is the perfect time to assess if this is the best way to help the people who need it."
Yahoo
20-05-2025
- Business
- Yahoo
Pros and cons of lifetime ISAs
Lifetimes ISAs, or LISAs as they're more commonly known, were introduced in 2017 to give UK residents between the ages of 18 and 39 the chance to save for their first home or retirement. According to HMRC, more than 1 million LISA accounts had been opened by 2023, with the total amount saved about £6.5bn. While COVID and the post-pandemic housing boom fuelled their use, more recently, there's been a decline in take-up, with higher interest rates and the cost-of-living crisis making home ownership difficult and saving for the long term even harder. 'According to data from HMRC, LISAs only accounted for 4% of total ISA subscriptions between 2022 and 2023,' says Amelia Murray, money expert at Be Clever With Your Cash. As a consequence, the government is currently debating their validity and looking into potential improvements. Read more: Martin Lewis issues lifetime ISA warning to MPs Brian Byrnes, head of personal finance at Moneybox, explains: 'The Treasury select committee launched a call for evidence on the lifetime ISA, looking to understand if the product's original design continues to meet the needs of young savers now and into the future. 'Despite being introduced in 2017, the LISA's core rules have remained unchanged, prompting the committee to examine whether it continues to effectively support first-time buyers and long-term savers.' With this in mind, we spoke to four financial experts to see whether investing in a LISA is still a good idea. What is a LISA? A LISA is a type of tax-free ISA that allows savers to deposit a maximum of £4,000 per tax year, on top of which the government will add a bonus of 25%, equating to an annual maximum of £1,000. After a minimum of one year, a LISA can then be used to purchase a first home, up to the value of £450,000, or, after the age of 60, be taken out as a pension. A LISA can only be opened between the ages of 18 and 39 but you can continue paying into it until the age of 50. Read more: What is the lifetime ISA? 'Importantly, if you opened a Lifetime ISA aged 18 and contributed the maximum £4,000 every tax year until you turned 50, you could earn up to £32,000 in government bonuses over time,' flags Byrnes. You can choose between a cash or a stocks & shares LISA but, whichever you go for, counts towards your £20,000-a-year ISA allowance. If you plan to use your LISA to buy a first home, you need to live there rather than use it as a buy-to-let investment. Who are they best suited for? As there are several restrictions on use, you need to carefully assess whether a LISA is the right product for you. Anna Yen, CFA at Moneylion, says they work for 'first-time buyers confident of purchasing their home (sub £450,000), basic-rate taxpayers, and young savers who can lock their money away long-term'. She flags that higher earners might prefer pension tax relief to LISA, as this can be up to 45%. In general, LISAs make a good choice for disciplined savers who are confident that they can afford to lock their savings away for the long term. What are the advantages? The main advantage of a LISA is that the government bumps up your savings by 25%, one of the highest savings rate currently available. '[Our] data shows that first-time buyers who use a lifetime ISA buy on average four years sooner than those who don't,' says Richard Dana, founder and CEO of savings and mortgage platform, Tembo Money. 'LISA's bonus and tax-free growth outperform pensions for basic-rate taxpayers. For example, there is no tax on withdrawals, whereas pensions attract income tax,' says Yen. '[They also] fall outside the purview of your estate.' It's also relatively simple to transfer lifetime ISAs between providers if you want to take advantage of a better rate. 'The 12-month time-limit starts from when the first LISA is initially opened, not from when it is transferred,' says Dana. What are the disadvantages? A major issue – and the one central to the current debate – is the withdrawal penalty. 'Savings made into a LISA can only be withdrawn without penalty when used to purchase a first home or accessed after age 60 for retirement,' says Byrnes. 'Withdrawals made for any other reason are considered unauthorised and subject to a 25% penalty, meaning savers not only lose the government bonus but also some of their own contributions.' This works out as the full government bonus, plus 6.25% of their own savings. While some sort of penalty will inevitably be retained, the present high level is dissuading savers who can't predict what the future holds: 'The current early withdrawal charge is harsh on those experiencing unexpected life events and means you could end up with less money than you put in,' adds Murray. Read more: What is an annuity? Everything to know before taking one out Another issue is the house price cap placed on buying a first home. In April 2025, the average London home cost £671,000, according to Rightmove, well above the £450,000 limit. And it's not just London. 'Data suggests that, unless the threshold changes, first time buyers (FTBs) will be priced out of buying a terrace house in 54 regions across the UK by the end of this parliament,' flags Murray. 'We recently surveyed more than 4,000 aspiring FTBs across the country, and 24% want to see the LISA price cap increased in line with house price growth; 23% want to see the LISA's penalty either removed or reduced,' says Byrnes. Another disadvantage is that the age limits are restrictive and exclude older first-time buyers; a trend that, with higher property prices, is only set to increase. Furthermore, it's important to understand the difference between a stocks & shares LISA and a cash one. 'Investment LISAs have higher charges than cash LISAs,' says Yen and these will also go down as well as up, in line with how your investments are faring on the stock market. What's the future of LISAs? The Treasury select committee is expected to announce its findings in the next few weeks and any suggested changes will be brought to parliament ahead of the autumn budget. 'The evidence and recommendations delivered so far range from simplifying the LISA's structure, to expanding its eligibility and increasing limits,' says Byrnes. 'There was much consensus on how the product could be future proofed for the next generation of young savers, including reducing the unauthorised withdrawal penalty and reviewing the property price cap so it reflects changing market conditions.' While LISAs have enabled hundreds of thousands of first-time buyers to purchase their own home, their impact on boosting people's retirement savings is less obvious and this is where the product may require a further re-think. Read more: How rising house prices can impact your finances 10 home upgrades that don't need planning permission What are green mortgages and are they the future?Sign in to access your portfolio
