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Yahoo
5 hours 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
New Statesman
12 hours ago
- Business
- New Statesman
George Osborne is still trashing the UK economy
Photo byThe Lifetime Isa sounded like an unbeatable idea: put up to £4,000 a year into a savings account and the government would add 25 per cent on top. What a bargain! A grand a year, for free! And for some people – people who could afford not to touch the pot until they used it to buy a home – that's exactly what it was. But for those who weren't sufficiently well-off to make proper use of it, the Lisa was a failed bet. The Lifetime Isa was part of George Osborne's highly successful programme to inflate the British housing market. Announced in Osborne's 2016 Budget speech, it joined Help to Buy (£29bn in government-backed, interest-free loans) in juicing demand among first-time buyers even as house prices rose beyond a joke. As with the other defining characteristics of the Osborne economy (such as low interest rates and quantitative easing), it helped contribute to the 'wealth effect' – the sense among property-owning middle classes that they were becoming better off because the value of their assets was inflating. Economically, the idea is that this causes people to spend more and grow the economy; politically, the idea is that this causes people to vote Conservative. But as a new report by the Treasury Committee shows, bungs like the Lifetime Isa are worth more to some people than to others. The key statistic is the number of people who ended up taking money out of their Lisa, thereby incurring a hefty penalty, before they used it to buy a home. In 2023-24, nearly 100,000 people found themselves in this position, while fewer than 60,000 used their Lisa to buy a home. This means large numbers of people – the people who could least afford to lose money – ended up with less than they had originally deposited. The Lisa has in this sense worked as a regressive benefit, handing free money to people with good jobs and/or wealthy parents, who could afford not to open the pot before buying a house – at the expense of those who could not afford to keep their money locked up. Again, I'd suggest this has some political implications in terms of which party's voters are more likely to benefit from the policy. The Lisa report should also be read in the context of a wider problem in the economy, which is that the UK has one of the lowest savings ratios in Europe, and a growing problem for Britain's future, which is that very large numbers of young people are not saving enough for retirement. Despite the introduction of auto-enrolment, an estimated one in five younger workers have never paid into a pension and more than half have paused their pension contributions. The Lisa was one way of betting that this could be worked around by getting people on to the housing ladder, and using their home as their main investment. But when the government uses finance to help one set of people on to the housing ladder, it also raises the bottom rung for everyone who wasn't able to jump on, and brings the whole wobbling, inflated construct a breath closer to popping. This means such policies carry a risk for everyone, even those who benefit in the short term, because people shouldn't be relying on a single asset in the property market for their retirement – they should have a diverse set of assets in different markets, managed by professionals and making use of the considerable tax breaks and employer contributions that come with pension savings. The Lisa therefore ticks a number of the how-not-to-make-policy boxes: it is short-termist, it favours one set of voters, and it quietly undermines the economy of the future. The trouble with policies like this is that by the time a responsible body like the Treasury Committee makes it clear how bad they are, the politicians who benefited from them have long since left, and are chuckling into a podcast microphone. This piece first appeared in the Morning Call newsletter; receive it every morning by subscribing on Substack here Subscribe to The New Statesman today from only £8.99 per month Subscribe [See also: Keir Starmer's 'Island of strangers' speech was right] Related
Glasgow Times
13 hours ago
- Business
- Glasgow Times
Lifetime ISAs are penalising benefit claimants say MPs
They added the products may need to carry warnings for some people, they may be diverting people away from more suitable products. 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.' Lifetime ISA win coming in budget?! Good news! @POLITICOEurope has a scoop by @JamesFitzJourno that Chancellor will follow my suggestion and wipe the 6.25% Lisa withdrawal fine for anyone buying a home. If true, this'd fix the current dire system whereby when people are priced… — Martin Lewis (@MartinSLewis) February 22, 2024 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.' 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. 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 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 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'.' What is a Lifetime ISA? A LISA is a savings product for people under 40 and saving for either a first home or retirement. Damien Jordan, founder of Financial Interest and Damien Talks Money says: "The government adds a 25% bonus to your contributions, which is unmatched by other savings accounts, and you still generate interest on top of this. However, there are penalties if you wish to withdraw the money for any reason other than buying your first home or retirement. You should also be aware that a LISA can only be used on house purchases worth £450,000 or less. This in particular has been an issue for home buyers in the South of England where property prices often exceed this limit." He adds: "Personally, I would use a Cash LISA to save for a home as I'd want to take advantage of the 25% top up (up to £1,000) from the government, but I wouldn't want to risk a short-term drop in the stock market affecting my ability to buy a home when I planned. For retirement, because the time scales are much longer, I would suggest a Stocks & Shares LISA in order to maximise potential growth." What's the problem been with Lifetime ISAs? 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. 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. The question is whether the Lifetime Isa is the best way to spend billions of pounds over several years to achieve those goals 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.' Recommended reading: Brian Byrnes, head of personal finance at Lifetime Isa provider Moneybox said: 'Having campaigned for many years on behalf of the UK's largest community of Lifetime ISA savers, we welcome the report today from the Treasury Select Committee as another step towards future-proofing this vital, incentivised saving and investing product." He added: "Nearly 3 million young savers and investors have already benefited from using a LISA, developing healthy saving and investing habits that stick with them for life and nearly 250,000 first time buyers have used the LISA to purchase their first home. All of this has been achieved for a fraction of the overall government budget. 'The LISA has proven particularly valuable for first time buyers on lower to middle incomes, with 80% of Moneybox LISA savers earning £40k or less. Reducing the unauthorised withdrawal penalty to 20% would be particularly beneficial to this group, especially in light of persistent cost of living pressures. In 2024, emergencies were the leading reason for LISA savers making unauthorised withdrawals (57%) so this change alone could remove a significant barrier to saving and encourage more young people to open and stay invested in a LISA'
Daily Record
14 hours 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
15 hours 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."
