LISA0023
Written evidence submitted by Anonymous
Background of respondent
I am an individual consumer who has a lifetime ISA (LISA) and a workplace pension. I contribute the full £4,000 to my LISA every year and I am with my employer’s default pension scheme at the default contribution rate. There would be no increase in employer contributions to my pension if I were to increase my own. I have not yet used my LISA to purchase a property, however I intend to in the next two years.
1. Is the Lifetime ISA fit for purpose in its current design, including as a combined product for house purchase and pension saving?
Pension saving and a house purchase contribute to the same goal, which is to provide enough resources at retirement for the individual to replace their income from work.
A large part of someone’s expenditure is housing. Purchasing a house and paying-off the associated mortgage removes the need to pay for rent in retirement, reducing the amount of money that needs to be saved.
Compared with other help-to-buy schemes, it avoids their flaws of being overly-specific and inflating the value of new-build homes. The LISA causes far less market distortion.
As such, the LISA accomplishes both aims and offers flexibility.
2. How well do consumers transition between using the Lifetime ISA as a product for house purchase, to then a product for pension saving?
No comment
3. Given its policy purposes, is the Lifetime ISA value for money for the Government?
Yes. It is in the interest that retirees have saved and own their own home as this reduces the burden on the state in terms of pension credit and housing benefit.
Whilst the LISA is effectively tax-free saving, the lost £1,000 per year should be put in context with the large amounts of tax-free money that can be released from a pension as part of the 25% lump sum rule or its inheritance tax treatment.
4. Is the Lifetime ISA a suitable pension savings product?
The LISA works effectively in conjunction with a formal pension savings product. Pension products have the advantage of employer contributions and attractive tax treatment, but come with far fewer investment choices (e.g. NEST’s options are expensive and very conservative), and do not allow withdrawals for mid-life needs.
There have been discussions in the pension industry about “sidecar” products. I believe the LISA works effectively as one.
The committee should encourage consumers to contribute to both a pension and a LISA.
5. Should the Lifetime ISA be abolished?
No. The government should prioritise consumers over the interests of the pensions industry.
LISAs tend to have lower fees than pension products and offer a wider range of fund options than pensions, who tend to be quite patriarchal in what products they let their customers select.
6. Should the Lifetime ISA be reformed to remove the withdrawal penalty?
The withdrawal penalty should be lowered to 20%, which would enable consumers to withdraw without net penalty, but would avoid costing the treasury. This would reduce the risk of contributions, encouraging more consumers to invest in a LISA, without causing an unintended windfall.
7. Should the Lifetime ISA be restricted to those with no access to a workplace pension?
No, there’s no reason why this should be case. A LISA works effectively in conjunction with a workplace pension, and offers the capability of being an effective and flexible side car. Those without a workplace pension could subscribe to a SIPP anyway, so I don’t why they should be privileged in this way.
Concerns that consumers are opting out of workplace pensions (and therefore employer contributions) and instead investing that money in a LISA are wrong, and I would certainly ask the committee to challenge pension providers to provide evidence that this is the case.
8. Should the Lifetime ISA house price cap be raised in line with inflation, or removed?
The house price cap should be abolished. The limiting factor on a LISA from a treasury cost perspective is the £4,000 annual contribution limit. Concerns over the LISA being used by the wealthy to purchase expensive property are misguided as they would not be any financially better off from the treasury than those purchasing a property under the limit.
Unequally rising house prices (not just in London) make the cap unrealistic in many parts of the country.
9. Should the annual Lifetime ISA limit be raised from £4,000?
The limit should be regularly raised in line with inflation to maintain the purpose and effectiveness of the product.
10. Should the Lifetime ISA be reformed in any other way?
More providers should be encouraged to offer LISA products. I believe some were discouraged by the 25% withdrawal fee and risk of being caught up in a future mis-selling scandal. Lowering the fee to 20% should avoid this.
The requirement that a LISA can only be used on the purchase of a first property should be abolished.
January 2025