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Universal Credit households warned claims at RISK over ‘mis-sold' savings accounts
Universal Credit households warned claims at RISK over ‘mis-sold' savings accounts

Scottish Sun

time30-06-2025

  • Business
  • Scottish Sun

Universal Credit households warned claims at RISK over ‘mis-sold' savings accounts

Find out why a group of MPs believe a savings account is being "mis-sold" to some people NOT TO YOUR BENEFIT Universal Credit households warned claims at RISK over 'mis-sold' savings accounts SAVERS are being warned that opening a certain type of savings account could affect their eligibility for Universal Credit. When you apply for the key benefit, the Government will take into account how much you have in savings. Advertisement 1 The Government takes into account your savings when you apply for Universal Credit Credit: Alamy One of the factors taken into account is whether you have savings in a Lifetime ISA (LISA). A committee of MPs has just completed a review into Lifetime ISAs - and concluded the accounts may have been improperly sold to people who could be eligible for Universal Credit. The Lifetime ISA lets you save up to £4,000 a year either towards a first home or for retirement. The Government adds a 25% bonus of up to £1,000 a year on top of everything you save annually. Advertisement Under the current system, any savings held in a LISA can affect your eligibility for Universal Credit or Housing Benefit. That's despite this not being the case for other personal or workplace pension schemes. The report said: "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." Advertisement The committee said the inclusion of the Lifetime ISA in the eligibility assessment for these benefits is "inconsistent" with other retirement products and "nonsensical". It comes as Chancellor Rachel Reeves is expected to reform ISA savings. Disability benefit explained - what you can claim ISAs are accounts that let you save away up to £20,000 every tax year without paying any tax on your interest or earnings. However the Government is hoping to push more savers towards investments rather than cash savings. Advertisement What is a Lifetime ISA? FIRST-time buyers saving into a LISA can stash up to £4,000 into this account each year tax-free. The government will add a 25% bonus to your savings, up to a maximum of £1,000 per year. For example, if you save £4,000, you'll get a £1,000 bonus. The amount you pay in is linked to your annual ISA allowance (£20,000 for 2023/24) – for example, if you pay £1,000 into your LISA, you can still pay £19,000 into other ISA products. Any bonus you earn doesn't count towards your ISA allowance. You can open a Lifetime ISA with any bank, building society or investment manager that offers the product. You can only open a LISA if you're aged 18–39. You can hold multiple Lifetime ISAs, although you can only pay into one each tax year. You can also transfer your Lifetime ISA to another provider, for example, to get a better interest rate. If you want to use a Lifetime ISA to buy a home, there are a few restrictions you need to keep in mind: Only first-time buyers can use Lifetime ISAs to buy a home, which means you can't own, or have owned, a home in the UK or anywhere in the world. You'll need to be buying a home for no more than £450,000. You must be buying a home you plan to live in – the scheme isn't for buying a home you want to rent out, or a holiday home. If you don't use it to buy your first home, you can continue paying into a LISA until you're 50. You can then make full or partial withdrawal from your LISA, without paying a fee, when you turn 60. Savers might be making 'poorer decisions' The review also found that Lifetime ISAs could be contributing to people making poorer financial decisions. Many use the accounts to boost their deposit savings for their first home. But experts have argued that restrictions placed on LISA customers have led to thousands missing out. You can only use a LISA to purchase a home worth up to £450,000, which in many parts of the country is feasible but in the South East and London this is increasingly pricing people out. Advertisement The £450,000 limit has not changed since the LISA was first introduced in 2017. On top of this, people withdrawing money from a LISA for any reason other than retirement or buying a first home face a 25% withdrawal charge. At face value this looks like just losing the bonus offered by the Government, but in reality you end up losing 6.25% of your own savings too. In the 2023-24 financial year, 99,650 people were charged the penalty. Advertisement That's nearly double the number of people who used their LISA to buy a home (56,900). The Treasury Committee, which released the report, said this was a possible indication the LISA is not working as intended. 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. Advertisement "The Lifetime ISA must include a deterrent to discourage savers from withdrawing funds from long-term saving." The Office for Budget Responsibility predicts spending on bonuses paid to account holders will cost the Treasury around £3billion over the five years to 2029-30. 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. Advertisement "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." Brian Byrnes, head of personal finance at Lifetime ISA provider Moneybox, said the accounts have "proven particularly valuable for first-time buyers on lower to middle incomes, with 80% of Moneybox Lisa savers earning £40,000 or less". "We firmly believe that by future-proofing the house price cap and amending the withdrawal penalty, the LISA would continue to serve as a highly effective product, helping young people build and embed positive saving behaviours early in life, get more people onto the property ladder, and prepare for a more secure retirement," he said.

New report suggests Lifetime ISAs may need to carry a warning for some people
New report suggests Lifetime ISAs may need to carry a warning for some people

Daily Record

time30-06-2025

  • 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."

Warning savers using Lifetime Isas are at risk of making poor financial decisions
Warning savers using Lifetime Isas are at risk of making poor financial decisions

The Independent

time30-06-2025

  • Business
  • The Independent

Warning savers using Lifetime Isas are at risk of making poor financial decisions

A parliamentary committee has warned that Lifetime Isas (LISAs) are leading people to make poor financial decisions due to their complexity and dual purpose for home buying and retirement savings. MPs highlighted that the dual objective often results in unsuitable investment choices and called for explicit warnings, particularly for those who might receive universal credit, as LISAs can affect benefit eligibility unlike other pension products. The committee criticized the 25 per cent withdrawal charge for unauthorized access, noting it causes savers to lose not only the government bonus but also 6.25 per cent of their own contributions. Data from 2023-24 showed nearly twice as many unauthorized withdrawals from LISAs compared to purchases of first homes, suggesting the product may not be functioning as intended. Concerns were raised about the £3 billion projected cost of LISA bonuses to the Treasury, questioning if it is the best use of public funds and whether the product effectively targets those most in need.

MPs slam ‘nonsensical' ISA that could affect Universal Credit
MPs slam ‘nonsensical' ISA that could affect Universal Credit

Daily Mirror

time29-06-2025

  • Business
  • Daily Mirror

MPs slam ‘nonsensical' ISA that could affect Universal Credit

The Treasury Committee warned Universal Credit recipients may be disproportionately affected by the account Launched in 2017, Lifetime ISAs offer a significant incentive for savers aged 18 to 40 by providing a 25% bonus annually, but they can only use the funds for a first home or retirement, with a 25% charge for other withdrawals. MPs have suggested that the complexity of the account might be leading to poor financial choices, prompting the Treasury Committee to call for reforms or at least a warning for certain savers. One particular issue highlighted by the report is the potential penalty for benefit recipients since unlike other pension products, Lifetime ISAs are counted when assessing Universal Credit eligibility. This could mean savers who need help at any point in the future might not be eligible for it and also won't be able to access their funds because of the w ithdrawal criteria. ‌ According to PA, the Committee's report stressed: "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." The report also criticised the withdrawal charge, especially since it does not only reclaim the 25% government bonus but also deducts an additional 6.25% from a person's original savings. "Several witnesses described that loss of 6.25% as a 'withdrawal penalty'," it remarked. In the financial year 2023/2024, there were 1.3 million open Lifetime ISA accounts with 99,650 unauthorised withdrawals incurring this charge. In stark contrast, a mere 56,900 Lifetime ISA holders managed to utilise their savings for purchasing their first home, and no eligible account holder has reached pensionable age yet. The committee suggested these figures may demonstrate that Lifetime ISAs fall short of their purpose. They projected that the annual bonuses are set to cost the Treasury around £3 billion over the forthcoming five years. Additionally, the committee highlighted another hiccup: savers can only use their funds towards a first home purchase if the property costs no more than £450,000, a cap increasingly difficult to meet due to soaring house prices. Nonetheless, the report cautioned that many lose out on their savings due to "lack of understanding", which could unfairly prevent prospective home buyers from stepping onto the property ladder. ‌ Dame Meg Hillier, chairwoman of the Treasury Committee, stated: "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." She added: "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." She concluded by saying: "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."

Tips from first-time buyers: 'We bought a £320,000 home aged 26'
Tips from first-time buyers: 'We bought a £320,000 home aged 26'

Business Mayor

time10-05-2025

  • Business
  • Business Mayor

Tips from first-time buyers: 'We bought a £320,000 home aged 26'

Lucy Acheson Business reporter Cameron Smith Georgia and Cameron saved for nearly three years for their deposit The Bank of England has cut interest rates for the second time this year – welcome news for first-time buyers after years of rising mortgage costs and spiralling house prices. But it's still tough. More than half of first-time buyers still rely on the so-called bank of mum and dad to get on the property ladder, with an average of £55,572 given in loans and gifts last year, according to estate agents Savills. We've spoken to people on a range of incomes who have managed to make it on to the ladder or are on the brink of buying. They shared with us the tactics they used to buy. 'We used a Lifetime ISA' Cameron Smith and Georgia Pickford, both 27, each opened a Lifetime ISA (LISA) in order to buy a three-bedroom flat in Hertfordshire together for £320,000 last year. The scheme allows 18 to 39-year-olds to save up to £4,000 a year, with a 25% government bonus, as long as it's used to buy a home under £450,000. Cameron earns £40,000 and Georgia £37,000 and they each set up a direct debit to their respective LISA accounts. 'Every month, £200 came out of my paycheque – no excuses, no distractions,' says Cameron. In just under three years, the couple saved £27,740, including the government bonus from their LISAs. To reach the full deposit amount, they topped this up with an extra £4,260 from their personal savings. But Cameron says the scheme hasn't kept pace with rising prices. 'The £450,000 cap was set back in 2017 – it hasn't moved. If your property is even £1 over that, you lose the bonus and get hit with a 25% penalty.' Following calls from campaigners for the terms to be updated, the Treasury Committee is reviewing whether Lifetime ISAs are still fit for purpose. Brian Byrnes, head of personal finance at Moneybox, a digital savings and investment platform, still thinks the scheme is a great option for first-time buyers. 'The Lifetime ISA works fantastically well for the vast majority of customers. Less than 1% are impacted by the £450,000 cap,' he says. 'I used an income booster mortgage' Abas Rai, 26, used a type of joint mortgage known as an 'income booster mortgage' to buy his first home – a £207,000 two-bedroom house in Suffolk. Read More Tesla stock downgraded again. Here's how to trade it now It's a product offered by some lenders that lets a family member's income be added to yours, even if they're not living in the property, to increase how much you can borrow. Even with a £30,000 deposit and a £33,000 salary, Abas struggled to get the loan he needed. To boost his affordability, he added his father, who earns £24,000, to the mortgage. By combining their incomes, the bank was able to offer a bigger loan, though it meant his dad would also be liable if he defaults. 'The bank added our incomes together and then multiplied it by 4.5 – that's how they worked out the affordability.' But involving a parent comes with some challenges. 'Because the person added on to the mortgage is also added on to the property, one of the risks was my dad's age – he's 55 and coming to retirement soon, so I won't be able to rely on his salary if I default on a payment.' Abas plans to re-mortgage and remove his dad once his income increases, but says the scheme was worth it. 'If you're not earning above, say £45,000, and you've got someone in the family, I would recommend you go for it.' 'We moved 150 miles to a cheaper area' After years of renting in Oxfordshire, Alex Bonfield, 34, has relocated to Manchester to buy her first home. 'My wife is a teacher and she had to find an entirely new job up here. She really loved her old school, but this was more important,' she says. 'It wasn't an easy decision. We don't know anyone here.' The couple were priced out of buying near family and friends in Oxfordshire, where average house prices are £479,000, compared with £251,000 in Manchester. They began saving five years ago, and are now house-hunting in the £300,000-325,000 range with a deposit of £50,000. 'We're not at the very top of our affordability, but we are quite high up.' They're far from alone. According to Santander UK, 67% of first-time buyers over the past two years have relocated to get on the property ladder. 'I went for shared ownership and a lodger' 'We were tired of doing that dance every year with the landlord trying to hike up rent by stupid amounts,' Oliver says. 'Now we're saving around £1,000 a month compared to our old flat.' Shared ownership schemes let buyers purchase a portion of a property and pay rent on the rest. They're often more accessible but come with complexities, like service charges and limited resale flexibility. Oliver's total monthly costs come to around £1,550, including £500 for the mortgage, £800 in rent on the 75% share he doesn't own, and a £250 service charge. While he and his lodger informally split costs, Oliver covers all the housing payments. 'My mortgage rate is 5.4%, but the rent on the unowned portion is only about 2% of the property value. 'It's cheaper to just own part of the property and pay rent than to buy the whole thing with a big mortgage.' 'The Help to Buy ISA worked for me' Daniel Price, 27, bought a three-bedroom home in the South Wales Valleys earlier this year, not far from where he grew up. He started saving four and a half years ago using a Help to Buy ISA – a government scheme that topped up savings by 25%, up to a £3,000 maximum bonus. It has since been replaced by the Lifetime ISA scheme. 'Originally, my mum told me about it, so I just put a pound in to open the account,' he says. 'I paid in £200 a month and eventually saved £11,000, which got me a £2,500 government bonus.' House prices in the South Wales Valleys tend to be lower than in many other parts of the UK, which can make home ownership there more achievable for first-time buyers. Daniel bought his house for £95,000, below the asking price of £110,000, due to some minor renovations the property needed. 'A lot of houses were out of my price range as a single person, so I started looking further afield.' 'My dad found the house on Rightmove and showed me it. Everything was a bit outdated, but still liveable. It just needs a bit of work to modernise it.' When he first applied for a mortgage in October 2024, Daniel was earning £18,000 a year while doing a software development apprenticeship. By the time the sale went through in January this year, his salary had risen to £24,000. 'I started saving when I was working in a factory as a warehouse manager. I then took up a tech apprenticeship and have just finished it. That helped with my affordability.' 'I bought a fixer-upper' Camilla De Cesare, 32, is a strategy consultant. She managed to buy her first home in London alone, but says it took seven years of living with her parents and being open to buying a property that needed some work. 'My family helped me with the deposit, and I had a stable job, so I was starting from a fortunate position,' she says. Camilla saved and invested a total of £80,000 into the S&P 500, which tracks the performance of 500 leading companies listed on the US stock market. By steadily contributing over time and benefiting from market growth, her investment pot eventually grew to £150,000. 'I was really lucky that the S&P 500, was growing really well over the years that I was investing in it, so it provided me with a really healthy cushion.' She spent £50,000 on her deposit, and the remaining £100,000 will go towards renovations on the property over the coming years, like a new kitchen and bathroom. She says saving for a deposit felt more manageable knowing she could tackle renovations gradually, as and when she could afford them. 'I think when you first get the keys you just want to do it all at once. But there's something satisfying about looking around and knowing you did some of it yourself.' Tom Francis, head of digital advice at financial advisers Octopus Money, says most people would benefit more from 'slow, steady saving'. He encourages prospective buyers to break their spending into three buckets: essentials, desirables and indulgences. 'Think of your dream home as the destination – you can't get there if you don't know where you're starting.' Sarah Tucker, CEO of the financial advice firm The Mortgage Mum, urges younger people not to wait until they've saved for a deposit before seeking financial advice from mortgage brokers. 'There's nothing better than speaking to a professional, even if you're years away from buying.' READ SOURCE businessmayor May 10, 2025

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