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

The property purchase-price cap is undoubtedly problematic for anyone using a LISA to purchase a home. However, for my use case (saving for retirement) I do think the LISA is well structured in its current form.

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

I previously had a Help to Buy ISA which was instrumental in helping me to purchase a property in 2018. Once I had purchased a house, I then opened a separate LISA to begin saving for retirement.

My experience and success with the Help to Buy account definitely encouraged me to later use a LISA in order to continue saving for retirement. There was no option to easily transition between saving for a house to then saving for retirement, however that may have been because the Help to Buy account had been discontinued and did not offer a retirement saving option. I would hope that new LISA accounts can continue past the point of house-purchase to make the transition to retirement saving seamless for consumers.

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

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

Yes, absolutely. Being able to save consistently to age 50, whilst benefitting from interest/growth and the government top-up on contributions makes the LISA an excellent retirement savings product for all. However, I believe the LISA to be essential for the self-employed in-particular. There are many reasons for this, but ultimately it comes down the flexibility in managing one’s finances, set against the limitations that come with saving into a pension.

Flexibility during saving

Whilst LISA savings are locked away until retirement, having the option to access the money in an emergency (albeit with a withdrawal penalty) provides a useful safety net against the uncertainty of life. Indeed, financial uncertainty is often far greater amongst the self-employed. I personally also save into a SIPP on the full understanding that that money is not accessible until retirement. Saving into both vehicles means I could potentially access the LISA savings early if absolutely necessary. Of course, I have no intention of ever doing so.

Having this safety net - knowing I could withdraw if I need to - means I actually save more for retirement than I otherwise would. Without a LISA, I wouldn’t be able to save the equivalent into a pension for fear that the money would be permanently inaccessible.

Lack of Employer-matched Contributions

For employees, having your employer match your pension contributions makes a pension an unparalleled vehicle for retirement savings. Anyone who is self-employed will miss out on this benefit but the government top-up into the LISA provides a real boost and incentive to save.

Flexibility at 60

Knowing I can access all of my LISA funds tax-free at 60 is hugely beneficial when it comes to financial and business planning.

Government top-up (LISA) vs Tax Relief (Pension)

It has been argued that for a higher-rate tax payer a pension is a better savings vehicle on account of the tax relief being greater than the government top-up in a LISA. Whilst mathematically this is true, I still value the aforementioned flexibility such that I am willing to forego the additional tax-relief. As I mentioned previously, I do also pay into a SIPP so I benefit from some higher-rate relief but, for safety, I wouldn’t be able to match my current savings rate exclusively into a pension so I would miss out on any further higher rate relief anyway.

I really can’t overstate how vital the flexibility of a LISA is to anyone who is self-employed. A SIPP on its own is too restrictive a product and, given the lack of employer-matched contributions, provides little in the way of benefits for the self-employed to justify taking on said restrictions.

5. Should the Lifetime ISA be abolished?

Definitely not. For all the reasons outlined above the LISA is arguably the only savings option that encourages, particularly the self-employed, to save as much as possible for retirement.

Missing out on employer-matched contributions combined with the inability to access the funds early make pensions problematic for the self-employed. Abolishing the LISA would inevitably lead to the self-employed saving less for their retirement, and I include myself in this.

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

I would actually argue, no. The withdrawal penalty prevents LISA users from dipping into their funds unnecessarily and therefore encourages committed retirement saving, which is the purpose of the product.

I do think it would be beneficial to abolish the penalty for anyone purchasing their first property – even if the purchase price is over £450K.

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

Most of the benefits I’ve outlined in this evidence apply to the self-employed so I strongly feel that those without a workplace pension are those for whom a LISA is most useful. However, I don’t see why an employee couldn’t also open a LISA to enjoy some of the benefits. An employee could, for example, use a LISA to save more than they would feel comfortable adding to a pension, and could also enjoy accessing it in full at 60.

The design of the product unquestionably helps those without a workplace pension, but I see no reason why someone with a workplace pension shouldn’t be allowed to open one if they so choose.

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

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

Increasing the limit would encourage more people to save more for their retirement, and this can only be a good thing. I would absolutely welcome the raising of the contribution limit, perhaps in line with inflation.

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

I fully expect to be working beyond age 50. It would be useful, therefore, to be able to continue to contribute to the LISA beyond that point, even up to 60 when the funds become accessible.