Future of lifetime Isa under review as MPs probe if it's still fit for purpose
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The Treasury Committee is seeking opinions on whether the Lifetime Isa is fit for purpose in 2025 and will even consider if should be scrapped. Lifetime Isas (Lisas)were designed to assist individuals in saving for their first home, provided it costs £450,000 or less, or for their retirement. However, withdrawing funds for any other reason, unless the individual is terminally ill, can result in a penalty. A 25% charge is levied for unauthorised withdrawals.
The Lisa was launched in 2016, but there have been calls for its redesign. The £450,000 cap on property purchases for first-time buyers has been criticised, especially given the recent surge in house prices. Data from HM Revenue & Customs (HMRC), published by money app Plum last year, revealed that the average of the top 25 penalties paid for unauthorised withdrawals in the tax year 2022-23 was £11,000. Individuals under 40 can open a Lisa and contribute up to £4,000 annually until they turn 50.
The government adds a 25% bonus to Lisa savings, up to a maximum of £1,000 per year. The Treasury Committee aims to gather views from the finance industry, consumers, and experts. MPs are interested in hearing opinions on whether the current design of the Lisa is fit for purpose, including as a combined product for house purchase and pension saving. They also want to know if the Lisa represents value for money for the Government, given its policy purposes, and whether the withdrawal penalty should be removed.
MPs are also considering whether the Lisa should be scrapped altogether, or if it should only be available to those without access to a workplace pension. The committee is also questioning whether the Lisa house price cap should be raised in line with inflation, or removed entirely.
