LISA0015

Written evidence submitted by Anonymous

1. Is the Lifetime ISA fit for purpose in its current design, including as a combined product for house purchase and pension saving?

 - Absolutely, my wife and I have used the Lifetime ISA for both a first house purchase and for retirement savings.

-          We are basic rate taxpayers and so the LISA is more worthwhile than a SIPP would be. I see it as a great way of helping give basic rate taxpayers a better chance of saving for the future.

2. How well do consumers transition between using the Lifetime ISA as a product for house purchase, to then a product for pension saving?

- It’s very easy to transition from house purchase to retirement savings with a LISA. All you have to do is not close the account down when buying a house.  

3. Given its policy purposes, is the Lifetime ISA value for money for the Government?

- I believe so. It costs far less for the government than higher rate taxpayers using a SIPP for example.  

And importantly the £4k a year cap significantly limits the cost, compared to a SIPP.

4. Is the Lifetime ISA a suitable pension savings product?

Yes, as explained it fills a gap for basic rate taxpayers (poorer people) to also get some benefit for retirement savings, and the cap of £4k balances the cost to the government.

5. Should the Lifetime ISA be abolished?

Definitely not. Honestly it would be a horrible decision that would cause even further instability to long-term planning – basically the greatest reason why people don’t want to save for the future as much anymore.

Look at the damage the recent pre-budget speculation caused. It’s the reason why Sir Keir’s popularity dropped so hard, the uncertainty in reforming pensions drastically was so damaging.

Stability in rules and schemes is essential. The Lifetime ISA is perfectly reasonable in its £4k a year limit and bonus value, when compared to other wrappers such as the SIPP and ISA.

6. Should the Lifetime ISA be reformed to remove the withdrawal penalty?

Definitely not. Of course it would be great for the consumer to have no withdrawal penalty but I believe the withdrawal penalty is the trade off needed to justify the bonus, at least for long-term savings. The point is to teach people about patience and delayed gratification, to develop a long term approach to thinking about money.

If you removed the LISA withdrawal penalty completely you would get every single under 40 opening an account and maxing out the £4k every year and taking out £5k as soon as they get the bonus. The system would be gamed to death.

At best you should reduce the penalty to 20% instead of 25%. So they get their contribution back but no government bonus.

7. Should the Lifetime ISA be restricted to those with no access to a workplace pension?

Definitely not. Workplace pensions may be more tax efficient if salary sacrifice but they are absolutely terrible in terms of investment selection, flexibility, the ability to use for a house purchase, the ability to use in a dire emergency (with a penalty) etc. There are plenty of reasons to use split contributions between a workplace pension and a LISA, as I do, as does my wife.

8. Should the Lifetime ISA house price cap be raised in line with inflation, or removed?

 I think originally it was too generous a cap and now it is about right, certainly should increase with inflation moving forwards.

9. Should the annual Lifetime ISA limit be raised from £4,000?

 I think £4k for LISA is correct. If anything it could be increased with inflation and the budget could come from reducing the overall £20k ISA allowance which is generous.

10. Should the Lifetime ISA be reformed in any other way?

No it’s really well balanced and designed. If you wish to increase uptake then you just need to advertise the benefits more clearly. 

January 2025