LISA0046

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 Lifetime ISA is not fit for purpose. I am a 31-year-old who has been saving since I was 20, and I have finally saved enough to buy a house. However, this scheme is making it impossible to get onto the property ladder. The £450,000 house price cap is completely unrealistic in London, where the average house price is far higher. The scheme's inflexibility and the punitive withdrawal penalty make it feel more like an obstacle than a support.

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

Not well. For savers like me who have been diligently putting money aside for years, the focus is entirely on purchasing a home. When the scheme imposes barriers such as the house price cap and withdrawal penalties, it leaves no room for it to be considered a viable pension product. These frustrations undermine trust in the scheme.

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

No. The Lifetime ISA does not serve its intended purpose effectively. Savers like me, who have worked hard for over a decade, find themselves penalised because the house price cap is so disconnected from the realities of the housing market, particularly in London. Instead of supporting first-time buyers, the scheme ends up taking money away from them through withdrawal penalties.

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

No. The Lifetime ISA fails as a pension product for many reasons, including the low annual contribution limit, the lack of employer contributions, and the harsh withdrawal penalties. For someone saving primarily for a home, it does not transition well into a pension tool, especially when the scheme's restrictions create significant financial barriers.

5. Should the Lifetime ISA be abolished?

Not necessarily, but it needs urgent reform. For savers like me, who have been committed for over a decade, abolishing it would erase a potential tool that could work if properly designed. Instead, the scheme should be overhauled to align with the realities of the housing market and the needs of long-term savers.

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

Yes. The 25% withdrawal penalty is deeply unfair, especially for those who cannot use their savings due to the restrictive house price cap. This penalty penalises people like me who have worked hard for years, only to find that the scheme does not account for high-cost areas like London.

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

No. Restricting the scheme further would exclude many savers and reduce its potential. The focus should instead be on making the Lifetime ISA more accessible and flexible for all savers, regardless of other pension options.

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

Yes, it should either be raised significantly or removed entirely. There should also be different limits for high-cost areas like London, where the average house price far exceeds the current £450,000 cap. Without these changes, the scheme remains inaccessible for savers who need it most.

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

Yes. The £4,000 limit is far too restrictive, especially when paired with the house price cap and rising property costs. Savers like me, who have been committed for years, are not able to keep up with the rapid rise in house prices under the current limits.

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

Yes. Key reforms should include:

• Adjusting the house price cap to reflect regional disparities, particularly in London, where the average house price is significantly higher.
• Removing or drastically reducing the withdrawal penalty to ensure savers are not unfairly punished.
• Allowing partial withdrawals without penalties for greater flexibility.
• Aligning the scheme with broader housing policies, such as Stamp Duty reforms, to ensure it supports rather than hinders first-time buyers.
• Providing clear and transparent communication to help savers understand the scheme’s benefits and limitations.

January 2025