LISA0045

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?

No. The current design is inadequate for its dual purpose. The £450,000 house price cap is unrealistic in London and other high-cost areas, making it unsuitable for many first-time buyers. Additionally, the 25% withdrawal penalty is punitive and discourages flexibility, which contradicts the intention of encouraging saving. If I purchase my first property for 500k or over, I am getting out less than I originally put in (due to the penalty charge)!

An average price for a 2 bed house in zone 5 (Bromley) is £564,935

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

Poorly. Most consumers view the Lifetime ISA as either a house purchase product or a pension product, not both. The lack of flexibility and high penalties create barriers for transitioning, leaving many disillusioned with the product.

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

Unlikely. The high withdrawal penalties may deter use, reducing the policy’s impact. If the funds are not used as intended due to unrealistic restrictions, the Government’s contributions risk being wasted.

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

No. Workplace pensions with employer contributions are far superior. The Lifetime ISA is not flexible enough to compete, and the penalty structure makes it unattractive for long-term savings.

5. Should the Lifetime ISA be abolished?

Not necessarily, but it requires significant reform. While the concept is appealing, its execution is flawed. Abolition would be premature if meaningful changes could make it fit for purpose.

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

Yes. The 25% withdrawal penalty is excessive, especially as it penalises savers who might face unexpected life changes. A reduced or removed penalty would make the product more attractive and fair.

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

No. This would limit its appeal unnecessarily. However, the Lifetime ISA should complement rather than compete with workplace pensions.

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

Yes, it should be raised significantly or removed altogether. The current £450,000 cap is outdated and excludes many first-time buyers, particularly in London and other high-cost areas.

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

Yes. The £4,000 limit is too restrictive, especially when paired with the other limitations. Raising the limit would allow savers to make more meaningful progress toward their goals.

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

Yes. Key reforms include:

• Allowing partial withdrawals without penalty.
• Expanding eligible uses beyond house purchases and pensions, such as education or emergencies.
• Increasing flexibility to adapt to modern housing and savings needs.

January 2025