LISA0043

Written evidence submitted by Anonymous

Summary: the Lifetime ISA would be fit for purpose if the price cap was increased in line with inflation. People are finding it hard to find property that fall under this cap and are having their deposits trapped in this product due to the withdrawal penalty. The withdrawal penalty makes sense to encourage pension provision. However, the price cap is discouraging potential first buyers from LISA’s objective of home ownership. As a prospective homeowner in London looking to start a family, I can not find any suitable properties that would fall under the £450k LISA cap. I would propose this be increased to £600k to reflect the increase in property prices since the LISA was introduced in 2017.

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

 No, the Lifetime ISA 450k price cap on property that may be purchased is too restrictive on first time buyers in certain parts of the UK.

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

 In theory, this can be managed well by those with good financial literacy. However, there’s a risk that someone saves in cash for their house deposit and doesn’t reinvest in higher risk assets to grow their pension pot after they’ve purchased their property. This would lead to lower pension on retirement.

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

 Yes, a help to buy scheme is desirable in the interests of social mobility and wealth redistribution. It is important that the terms of the scheme are updated so that these goals are being achieved.

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

 Yes

5. Should the Lifetime ISA be abolished?

 No

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

 This is one solution. However, if only the withdrawal penalty was changed, people might withdraw their savings and use it for purposes other than the purchase of a house/retirement. This would not be the objective of the LISA product in the first place.

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

No, Lifetime ISA may be more attractive to those with only access to a poor value scheme. 

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

 The LISA house price cap should be raised with inflation as people are struggling to find property for under £450k that meet their criteria. In some parts of London, you would find it hard to find even a 1-bed apartment under £450k.

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

 The annual Lifetime ISA limit should be raised over time in line with inflation and the overall ISA allowance – rounded to the nearest ‘000 for simplicity.

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

Maximum charges on funds that may be held in a S&S LISA might be worth investigating as high charges will have a detrimental impact on one saving to purchase a property/retirement pot.

January 2025