LISA0061
Written evidence submitted by Anonymous
I am submitting evidence to this consultation based on the reasons that I am a) a previous holder of a Lifetime ISA (LISA) used to purchase a qualifying property, b) the current holder of LISAs for retirement, c) an employee of a financial services firm, d) a taxpayer who’s funding it.
Yes. The LISA is a recipient of, in my view, unwarranted criticism about how it ‘conflates saving for two very different goals’, namely buying a property or investing for retirement. The former is generally seen as a shorter-term goal with the latter as a longer-term goal. This is a massive oversimplification. Multiple ‘flavours’ of the account exist for primarily this reason. Many individuals will be saving into the account with just one goal in mind, and will make the decision between a Cash or Stocks & Shares ‘flavour’ of ISA as they deem appropriate. For those who do intend to utilise the LISA for both of its ‘use cases’, switching between these account types is easy. Even for those, there may well be some individuals who use LISA savings for both goals in the opposite order than is generally expected.
One may argue that LISAs conflate saving for two very different goals, but it does not do so to any greater extent than a Cash ISA, Stocks & Shares ISA, General Investment Account or storing precious metals under the mattress do.
Very easily – from personal experience, it is very straightforward to transfer LISAs using the standard ISA transfer system between either providers and/or account ‘flavours’ as needed. It does not take much mental thought or capacity to understand the differences between the types of accounts and how these are likely to relate to an individual’s goals in the future.
Judging by the track record of successive Governments to get value for money, probably not.
Yes, absolutely. This is another area in which the product garners unwarranted criticism in my view. For some individuals, a registered workplace pension will be a better vehicle for retirement savings, but the LISA wins out for many other groups e.g. in many cases the self-employed or basic rate taxpayers who pay into a relief at source pension, for example. It provides numerous additional benefits not provided by workplace pensions or SIPPs and gives holders more options in how they wish to drawdown on funds in various accounts attracting different tax treatments in their retirement years.
No. If they are, then very careful thought will have to be given to how you compensate those who have paid into them with the aim of retirement. Note, that this is not just a ‘refund’/permitted access to tax relief that has been contributed, it is a recognition of, and compensation for, the resulting adjustments that would have to be made to retirement planning, not least the additional income tax that would be due by virtue of having to pay into, and then draw down from, a pension as opposed to a LISA.
In most cases, no. The LISA is subject to significant tax relief provided by the taxpayer. The relief is in part a recognition of an effort to save for a property and/or for ones retirement. If individuals invest into an account which is not aligned with their goals, they should not have the expectation to receive the Government benefit then pull the money out to be utilised for other purposes. Personal responsibility is key here. The one exception I see to this, is the fact that LISAs behave like a pension with their restricted access age, but unlike a pension, are subject to be classed as assets during claims for means-tested benefits. LISA values should absolutely be excluded from their assets when being considered for short-term benefits.
7. Should the Lifetime ISA be restricted to those with no access to a workplace pension?
No, absolutely not. As noted in 4, some pension arrangements will provide more efficient options for saving for retirement than the LISA. However, the decision about whether an individual is better off paying into a LISA or a pension is one that should remain in the realms of personal responsibility, not by way of legislation.
Neither, it should be lowered. While house prices have undoubtedly risen substantially since the LISA was introduced, and the first and current cap set, no-one buying a £450,000 asset should be receiving a subsidy from the taxpayer to do so. I see merit on setting the house price cap to be the median house price. While individuals are undoubtedly joining the property ladder at increasingly older ages, it is only natural to expect that first-time buyers are buying nearer the bottom of the ladder below the median house price. Starting off with such a high cap, which ironically and thankfully has been eroded away in real terms by rampant house price growth, is one of the main drivers behind that rampant rise in house prices, which laughably is now used as a justification for a higher cap.
Possibly. Following a rapid rise in the ISA allowance to £20,000/year from April 2017, it was then one of the most generous by international standards. While it remains generous on the international stage, inflation has totalled 44.45% over the time period since to November 2024. The main ISA allowance should be rising at least with inflation going forward, as part of which it only feels natural to also raise the Lifetime ISA limit to keep it the same proportion as the overall allowance.
Once this consultation is complete and decisions have been made, it should be left well alone. Much like the changes to the National Minimum Pension Age (NMPA), Lifetime Allowance limits or inheritance tax treatment of pensions etc, no-one can invest with confidence into the LISA, or any financial product, if they know, or even fear, that the goalposts are going to be continually moved by successive Governments.
January 2025