With changes to Individual Savings Accounts (ISAs) expected in the Autumn Budget, one variant has come under heavy criticism from the Treasury Select Committee: the Lifetime ISA (LISA).
The Origins of the Lifetime ISA
A Product of George Osborne’s Final Budget
The Lifetime ISA was first introduced in George Osborne’s final Budget in March 2016. It was designed as a new way to encourage pension savings and, at the time, appeared to be the foundation for a potential overhaul of the wider pension tax regime.
Following Osborne’s departure after the Brexit vote, there was uncertainty about whether LISAs would ever materialise. However, in April 2017, the scheme officially launched.
Why Providers Have Turned Away
A Complex and Underused Product
From the outset, many ISA providers gave LISAs the cold shoulder. They were considered too complex, difficult to advise on, and ultimately unattractive compared to other ISA products.
Eight years on, only one in seven ISA providers includes LISAs in their offering. This limited uptake has caught the attention of the Treasury Select Committee, which has raised serious concerns about the product’s effectiveness.
Key Problems Highlighted by the Treasury
1. Early Withdrawal Charges
Withdrawals made outside of the permitted criteria face a 25% penalty, which actually reclaims more than the government bonus originally awarded. In 2023/24 alone, HMRC collected £75 million in early withdrawal charges—an indication that the scheme may not be functioning as intended.
2. Conflicting Purposes
The LISA has two uses:
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Retirement savings – funds can be accessed penalty-free from age 60.
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First home purchase – funds can also be used for properties valued up to £450,000.
These two goals—short-term property purchase and long-term retirement saving—require very different investment strategies. Yet, many LISAs are restricted to cash-only plans, limiting potential growth opportunities.
3. Cost to the Government
Although the maximum annual subscription is capped at £4,000, the government’s 25% top-up bonus means the scheme could cost around £3 billion over the next five years. At a time of tight public finances, the Treasury Select Committee has questioned whether this represents good value for taxpayers.
The Future of LISAs
The Committee’s findings could spell the end for new LISAs. For those considering this option, acting soon may be essential. However, it is crucial to seek professional financial advice first, as alternative strategies could better suit your circumstances.
Important Investment Notes
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The value of investments and any income from them can fall as well as rise. You may not get back the amount you invested.
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Investments in shares should be seen as long-term and aligned with your financial goals and risk tolerance.
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Tax treatment depends on individual circumstances and is subject to change.
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Tax advice is not regulated by the Financial Conduct Authority.
Taking the Next Step
At Chartwell Wealth Management, we help our clients cut through financial complexity and make informed decisions about their future. If you’re considering a LISA, or wondering if there are better ways to achieve your savings and retirement goals, our advisers are here to guide you.
Contact Chartwell Wealth Management today to arrange a consultation and explore your best options.
