LISA0014
Written evidence submitted by Anonymous
I am giving evidence in a personal capacity because I use a LISA and I am horrified by the idea that it could be taken from me on a whim. We should be encouraging our people to save more, not less.
I am 26 years old and I work in the public sector. My wife is training to be a nurse. We have both been saving in our LISAs and aiming to fill them, intending to use them for purchasing a home and retirement.
For retirement I enjoy the certainty of knowing the date at which I will be able to access it. Pensions are frequently altered and I expect my pension age to shift by a decade by the time I get there. I assumed given the nature of the scheme, that LISAs would be protected from such rug pulls. I’m concerned by the discovery that my lifetime savings could now be taken from me on a whim because a government doesn’t like the scheme.
I believe that we should improve the scheme to make it more popular, not take it away. It should become a truly “lifetime” ISA, starting from birth and continuing until retirement. We should abolish products such as Junior SIPPs and Junior ISAs, and convert them into LISAs which will allow parents to contribute towards their child’s milestones, without the risk of the money being withdrawn for frivolous spending.
In the ideal world everyone under 40 should have a LISA. Everyone needs a home and everyone needs to retire. This is the scheme to help achieve that.
1) Is the Lifetime ISA fit for purpose in its current design, including as a combined product for house purchase and pension saving?
Yes. There are some potential improvements which could be made, but in general, it is an excellent scheme. House purchases and pension saving are two key milestones which everyone will need to reach at some point in their life. Allowing people to save for both with one product, and easily roll it over, is very useful.
2) How well do consumers transition between using the Lifetime ISA as a product for house purchase, to then a product for pension saving?
N/A - I have not made this transition.
3) Given its policy purposes, is the Lifetime ISA value for money for the Government?
For pension saving, the LISA is better value for money for the Government than conventional pension schemes because it does not return the taxes paid on higher rate contributions or allow salary sacrifice. It offers the best value to basic rate taxpayers, which is the group that the government wants to offer the most support to.
For house-related saving, there are no other schemes still available to enrol in. It allows citizens the opportunity to save for a house, at a lower level of support than pensions. If we are willing to fund pensions, we should be willing to support house ownership.
4) Is the Lifetime ISA a suitable pension savings product?
Yes. I have chosen to use a LISA because it is a fixed, reliable product. I know exactly what I will receive and when I will receive it. With a pension, the rug can just keep being pulled. I don’t know what my pension age will be, it could be 70 by the time I get there. I like the certainty of knowing when I can access my LISA.
The LISA is effectively the same as a SIPP for basic rate taxpayers, so the government is not any worse off by allowing us to use it for pension saving. But that certainty is invaluable to me. I chose this product because of that certainty, please don’t pull the rug on me now.
One weakness in the LISA, is that because it is withdrawable with a penalty, it is treated as accessible money. This means that people with a LISA are ineligible for certain financial support unless they drain their pot first. Whereas someone with a million pounds in a pension pot, would be unaffected.
If you were to follow a strategy similar to help to buy and just prevent any more being opened, then we’ll end up in a situation where we have retirement funds, but no providers left. Whoever is left will have to pay ridiculous fees because of the lack of competition. Please don’t do this, just leave us be.
5) Should the Lifetime ISA be abolished?
Please do not take this away from us. The young are already struggling enough to try and get on the housing ladder.
The LISA is a simple, straightforward scheme that people can understand. You put £4k in, the government puts £1k in.
It’s a powerful scheme. You can choose to use it as a savings account, or invest it in stocks and shares. This means that for once, people actually have control over their money. We’re not forced to take 1% interest or invest 90% in bonds.
The limits are reasonable. £4,000 a year is £333 a month. It’s a challenge, but a doable challenge for someone on the average wage. It feels achievable and something to work towards.
The LISA is one scheme that people my age are actually aware of. Ask people how a pension works and they have no idea, but I have come across many young co-workers who have LISAs. I’ve met young women who come from the kind of circumstances that would never suggest they would be able to buy a house, yet they are maxing out their savings to get one. Do not take away their opportunity to build a better life.
6) Should the Lifetime ISA be reformed to remove the withdrawal penalty?
I believe the penalty should be removed in cases where the money is being used to purchase a residential property for the person to live in. For example, if they purchase a property which is over the price cap. It is unfair to enforce a penalty under these circumstances, because they are doing the very thing we are trying to encourage.
I think the penalty serves a purpose in other cases. The LISA is about encouraging people to save towards long-term goals like purchasing a house and retiring. If you can just dip in and out of it, then it defeats the purpose of it. I’m not opposed to a penalty in these cases, or even restricting access to the pot entirely. It could be restricted to house buying and retirement only, in a similar way to a pension.
7) Should the Lifetime ISA be restricted to those with no access to a workplace pension?
Every employee has access to a workplace pension, so to restrict it in this way, you would be restricting it to students, people on welfare, and wealthy people who don’t work. All of those groups can already access the LISA, so you’re only robbing taxpayers of the opportunity to better their circumstances.
I’m struggling to see an argument for why we would want to restrict it in this way, other than to kill the scheme. The LISA is about saving for a home, and then for retirement. It complements the pension scheme, it doesn’t replace it.
8) Should the Lifetime ISA house price cap be raised in line with inflation, or removed?
In order to buy a property above the £450,000 limit, you would need to be maxing out your LISA for more than 10 years. You would also need to be in the top 10% of salaries, or higher. Realistically, the people this scheme is targeted at (basic rate payers), are the people that are never going to be buying a property like that as their first property. I therefore don’t see an argument for increasing it. In order to buy such a property, you would have to be independently wealthy, and then you are just using the scheme to top up your wealth by 25%.
The only area in which this would be applicable is London, and this is an area which we need to move demand out of. We shouldn’t be propping up the ridiculous prices through financial support.
9) Should the annual Lifetime ISA limit be raised from £4,000?
£4,000 is about £333/month which is challenging but achievable for the average earner. I wouldn’t say no to increasing it, but I think it’s reasonable for saving for a property. If you were to increase it to £20,000, then only the wealthy would be hitting that limit. You would be heavily subsidising them.
For pension saving a higher limit could be useful. As people reach later stages in life they will be earning more, so they’ll want to save more. While £333 is a challenge for the newly employed, it’s much less of a challenge when you are further into your career. Raising the limit would be useful for them.
January 2025
1) Should the Lifetime ISA be reformed in any other way?
The idea of a single product that follows you through life is excellent. Let’s build on that idea.
Take the two unpopular child-related products, Junior SIPPs and Junior ISAs, and merge them into LISA. The flaw with JSIPPs is that you’re saving for your child’s retirement, which is missing their key milestones where they need the money more. The flaw with JISAs is that they can blow the entire pot the day they turn 18.
If we merge them all together and abolish withdrawals (outside of retirement/houses), then we get a product which can follow them through their whole life, from birth to retirement. A “Lifetime” ISA. You can start them on their way from birth, free in the knowledge that they can’t waste it.
In addition, you could make contributions from the government, in order to benefit certain groups which need extra support. For example, depositing into a LISA for children on free school meals or for children in care. You know they can’t withdraw it except for housing or retirement, so it’s spending purely to break the cycle of poverty. Imagine knowing as a child in care that if you keep your nose clean and don’t join the gang, you’ll have a housing deposit waiting for you when you leave uni. That’s real genuine motivation to better yourself. That’s the kind of society I want to live in.