LISA0065
Written evidence submitted by Anonymous
Who am I and reason for submission
I am a resident of the UK, who has contributed to a LISA for a number of years. Together with my partner I used my LISA to purchase my first home and I am planning to continue to use the LISA to prepare for my retirement. I believe this is a valuable financial tool for UK residents and would like to add my perspective to the debate.
The LISA is a valuable option for individuals who are uncertain about their future plans. It is not the most efficient option for pension saving and has limitations when it comes to house purchasing, but unlike other options it offers flexibility and a safety net (withdrawals are possible) which are not provided by any other options.
I have maintained my contributions to my LISA after using it to purchase a property. I am also contributing to a pension up to the employer match. The LISA is an effective product for contributions beyond the employer match.
While I understand that I would receive greater tax relief on incremental pension contributions, the driving factor behind my use of the LISA is that the money is not fully locked up. I plan to leave my contributions in the LISA until retirement age, however the fact that in an emergency (longer term unemployment, illness, etc.) I would be able to withdraw some of these savings as a last resort makes me feel significantly more secure in maintaining my savings rate. If the LISA was not available I would likely not make these additional contributions to my pension, but rather keep them as additional savings.
These considerations are particularly relevant for basic rate tax payers as these receive equivalent tax relief (25% bonus on net contributions vs. 20% tax reduction on gross contributions) on pensions and their LISA, but they often have lower resiliency in the face of immediate financial shocks. This resiliency is improved by a LISA, but not by pension contributions. This makes the LISA to some extent preferable to pension contributions once the highest employer match is met (often at quite low % contribution levels for lower paid jobs).
No, as described above it offers unique capabilities which are not covered by other products. This increases choice for savers, and lets them tailor their retirement and investment approach to their needs.
I believe the penalty should remain. The penalty provides an important disincentive to accessing the money and justifies the government bonus. To work as a pension product it is an important element. There is some consideration for reducing it to 20% as this will simply recover the government portion, but this may make withdrawals too attractive.
No, this would represent a duplication of available products (SIPP). It would make more sense to put in place some sort of replacement “employer match” scheme into SIPPs for the self-employed and others with no workplace pension access.
Inflation and house prices are not very closely correlated in the UK, so this would not a sensible benchmark. However the purchasing power of the LISA has declined significantly since its introduction. It would be best to benchmark it to regional house prices, e.g. for a London purchase it could be benchmarked to the median property price in the London region in the last 24 months. This would introduce complexity but as long as the number of regions is kept low and boundaries are clearly defined it should be net beneficial. The limit probably shouldn’t be removed completely as the LISA should boost the purchasing power of lower income contributors, and not provide a basic bonus to any house purchase, no matter how large.
No, 4000 GBP represents a significant savings rate for most of the target demographic of LISAs. Increasing it is likely to only benefit those who are already very well off, and for this group it would be more financially productive to increase their pension contributions due to the greater tax relief. At most the threshold should be subject to regular review in line with wage growth.
January 2025