LISA0117

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? 

 

The LISA isn’t currently fit for purpose, the penalty looks like a mathematical oversight at its conception as no other investment vehicle penalises for more money that is invested for withdrawal (barring early exit fees). Bearing in mind this is taxed income being contributed. The property cap has been the main problem with the LISA. Even outside of London – very few properties suitable for starter families are possible now in the south of England. Considering savers need to save for upwards of 8 years to get a deposit even for a modest flat. A huge contingent of savers now face a choice of buying a 1/2 bed flat into their 30’s which affects decisions when it comes to starting a family. Or withdrawing the money to use on a more suitable home, which comes at such a steep penalty that it would put the house purchase back many more years. I myself, in my mid 30’s and having saved for 7 years in the LISA, am choosing between buying a small flat and forgoing a family completely with my partner of 10 years, or withdrawing the money at a penalty and trying to save for a slightly larger home over a few more years – in which time it may be too late. Having faced multiple evictions from rental properties, it feels irresponsible to start a family in rentals. I know I am not alone here – evidenced by the dramatic drop in birth rate of my generation. Small olive branches like raising the price cap to a reasonable level in line with inflation would dramatically fix the usefulness in a lot of situations and help a huge number of young hardworking people get on the property ladder and start families.

 

 

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

 

If people can purchase a property with the LISA, the process to continue saving for a pension seems easy. Its unlikely it would be used in many cases as using a workplace pension is often a better option.

 

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

 

I believe it is, it provides a good, balanced option for self – employed people to save for a pension. Whilst attempting to address the massively inflated property market problems for first time buyers. Labour’s policy of house building to help first time buyers will only help in many years to come so my generation feels abandoned by this approach. A fit for purpose LISA would help first time buyers now.

 

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

 

For higher rate tax payers, the SIPP is a better vehicle and the LISA should only be used as a secondary supplement.

 

  1. Should the Lifetime ISA be abolished? 

 

No, with reform, primarily the property price cap – this would be an excellent vehicle for first time buyers – encouraging them to save and invest as soon as possible.

 

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

 

20% withdrawal would be fair as long as the property price cap is realistic. If there is no plans to increase the price cap, the government should realise the LISA has become a unfair trap and remove the withdrawal penalty in its entirety and close the LISA.

 

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

 

No, the LISA is a worse saving vehicle than a SIPP in most cases (higher age of access, worse tax benefits). So it should not be restricted as it doesn’t provide an advantage.

 

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

 

Absolutely. The price cap has become so unrealistic that it has made the LISA almost useless in most cities and most the South of England. Most acutely in London – where it is often no longer possible to use it to even buy a 1 bed flat in a lot of areas. Labour’s approach shouldn’t be to ask savers to quit jobs and move cities.

 

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

 

I don’t think this is a main issue with the LISA. And certainly not without raising the cap as it would just trap more people out of their money if they were to contribute more.

 

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

 

People investing in the product knew the terms when they first opened one and it was popular. The only thing that has destroyed its usefulness is the speed at which house prices have increased – taking savers by surprise and now trapping their money. Inertia from multiple Chancellors has led to this situation and an increase in the property price cap alone would make the LISA fit for purpose.

 

 

January 2025