Liam Roberts had only just finished university, but he was already thinking ahead to how to buy a home and fund retirement. In 2018, he was looking for a way to build up some savings, and so he chose a Lifetime ISA (LISA). Anyone under 40 can open a LISA to either help save towards retirement or buy a first home. Savers can put in up to £4,000 a year and the government will top it up by 25%.
Liam bought a two-bedroom home in Manchester in 2022, using the cash savings and government bonus to help pay the mortgage deposit. That LISA was automatically closed, and so, after getting his job as an asset manager, he opened another one. This time it was a stocks and shares LISA, for even longer-term retirement plans. Again, he puts in the maximum £4,000 a year, and gets the 25% government bonus. He can start making withdrawals, without a penalty, from the age of 60.
The influential Treasury Committee of MPs has said the LISA is ripe for reform, as the commitment of taxpayer funds is involved. Many people have got in touch to express their dismay about the product’s pitfalls. At the heart of these concerns are two issues: the penalty involved in withdrawing money early, which means people face losing 6.25% of their own savings, and the cut-off which means LISA savings can only be used when purchasing a property up to a value of £450,000.
One of those who was affected was Holly from London. The 28-year-old says she lost around £750 when she bought her home in 2023. “I was very upset because I’d been using it to save for a house since I was 19 and I did actually use the money to buy my first home as the scheme intended.” She says at 19 the chances of buying a house over £450,000 felt very remote but then her career was going well and she met her future husband.
Daniel Slavin set up a LISA in his 20s. At the time, as a single person, he understood why the thresholds were there and thought it was a good product. But fast-forward a few years, and now married, when it came to buying a house, he and his wife Lucy fell foul of the £450,000 limit. While they were still able to buy without needing to use their LISA, Lucy says it put them in a difficult financial position.
Martin Lewis, founder of MoneySavingExpert, says the £450,000 threshold is “unjust, unfair 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 said. Helen Morrissey, head of retirement analysis at investment platform Hargreaves Lansdown, says that LISAs had proven popular among the self-employed, who can save for retirement despite not having access to a workplace pension.
LISAs were launched under the then-Conservative government in April 2017. Since then, 6% of eligible adults have opened one, with about 1.3 million accounts still open, according to the most recent figures. The government says the LISA is a source of celebration but, in time, it could well address some of their concerns. “Lifetime ISAs aim to encourage younger people to develop the habit of saving for the longer term, helping them to purchase their first home or build a nest egg for when they are older,” a Treasury spokesperson said.
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