LISA0084
Written evidence submitted by Anonymous
I am a private individual who makes use of these products. As a consumer, these changes will affect me directly and I wanted to contribute to the inquiry.
No, it doesn’t offer enough security for retirement, especially as 1) it’s unlikely that most people will contribute the full £4,000 per year for every year they are eligible to, and 2) if they withdraw funds for a house purchase, it further negates its usefulness as a pension option 3) £4,000 per year is too small a limit if, for the most part, people will be contributing to this once they have a steady job that pays well and/or after buying a house (probably from someone’s 30s onwards).
As a product for house purchasing it offers some significant benefits, but if the LISA is used for that purpose, it offers very few benefits as a pension option. Personally, I am using my LISA to save for a house, but I will not be using it as a retirement option as it is too restrictive (I may need the money saved for an unforeseen future emergency and the withdrawal penalties are too draconian to make it a safe investment) and I couldn’t save enough money in the LISA post-house purchase to make it a worthwhile investment.
No. While the government contribution of £1000 on £4000 is a very generous 25%, the limit is too low when you compare how much you can save into a private pension tax-free (£60,000). Over the course of eligible years (32, assuming the maximum and no withdrawals for house purchases) for a LISA, an individual could save £128,000. There would be a government bonus of £32,000 on top of that, totalling £160,000. There would also be a modest amount of interest to add to that, current interest rates are around 3.8%. The average base rate for the last 20 years is about 3%. Assuming that rate, you’d likely earn about £110,000 in interest (give or take) bringing the total to £270,000. Assuming most people retire at 67 and live to 80, that’s 13 years of retirement, and about £20,700 per year pre-tax from the LISA.
With pensions returning about 8% over the last 5 years, if you invested the same amount of money over the same timeframe in a private pension, your return would be about £579,000, or £44,500 per year pre-tax. Even if the average interest were 5% (which is more realistic over the timescale), the total investment would be £316,000, or £24,300 per year pre-tax. Both scenarios offer significantly more than the LISA.
No. It is a useful tool for first time buyers and offers some improvements over the H2B ISA such as being able to be used for the deposit and a higher house price limit.
Yes. People shouldn’t be penalised for needing money they have earned and saved for unforeseen circumstances or for changing their plans of what to do with that money. It is fair to lose the government bonus on the money withdrawn, but the capital should not be affected.
No. As a pension option it is not really a suitable option. Though, I’m not sure if there are barriers that would prevent people without a workplace pension investing in a private pension. I would suggest that the government would be best off ensuring that both the state pension and workplace and private pensions are fit for purpose and available to all rather than trying to create a strange personal pension through a LISA. The LISA should remain as a house purchasing mechanism as, for young people, getting on the housing ladder is extremely difficult and schemes like this help immeasurably.
Yes, of course! Everything else moves with inflation, why doesn’t this? What you could buy for £450,000 nine years ago is very different from what £450,000 will buy you today. It would be nice if the cap were removed entirely, I doubt there will be many first-time buyers spending more than £450,000 anyway!
Yes, you should be allowed to save the same amount of money in the LISA as any other ISA, but if you choose to invest in a LISA, you can’t then add to another ISA (i.e. the same £20k annual cap that currently applies). I’m in a fortunate position where I can save more than £4,000 a year but I have to split my savings between the LISA and another ISA/high-interest savings account, even though all that money will be put towards a house. It would be nice to put it all into one account and receive a bonus on it. Additionally, if you are in a position to be able to buy a house quickly, a £4,000 a year cap prevents you from gaining any benefit. For example, if I have £30,000 for a house deposit already saved in another account, it would take me 7.5 years to transfer that money into the LISA to make use of the benefit. In that instance, I wouldn’t want to wait the 7.5 years and would move ahead with a house purchase and only receive, at most, a year or two of LISA benefits. My exact circumstances were that I had £12,000 in a H2B ISA and made the decision to switch to a LISA because the benefits were better. It then took me a further 4 years to move my money across which isn’t very practical when I’d already saved that money in an account specifically designed for a first house purchase. Luckily I am not in a hurry to buy so it was a minor inconvenience overall, but an inconvenience nonetheless. I appreciate changing the annual limit would add a significant cost to the government, and I’m not an economist, but I would think having a generation of people who have their own homes is far more cost-effective in the long run than having those people potentially relying on council housing or being at the mercy of private landlords where rent can be a disproportionately large amount of a person’s take home pay. It would also help people who already have some capital saved and would like to benefit from the scheme without having to wait a long time to do so.
Not that I can think of. Main reforms should be 1) removing the withdrawal penalty 2) upping the price point of a house, and 3) upping the annual limit on the LISA.
January 2025