LISA0125
This is in response to your call for evidence on Lifetime ISAs. I have three sons with LISAs and I am not happy with how the scheme has been managed over time.
1. Is the Lifetime ISA fit for purpose in its current design, including as a combined product for house purchase and pension saving?
Its design is and was generally sensible in most respects but the failure to update the threshold for home purchases in line with inflation has meant that it is now not suitable for many young savers.
It is also unhelpful that when two people (e.g. a couple) both have LISAs, the threshold for home purchase is still that of a single person. Clearly, since they are buying together they will be looking for more space for themselves and, quite possibly, future children.
2. How well do consumers transition between using the Lifetime ISA as a product for house purchase, to then a product for pension saving?
No comment on this.
3. Given its policy purposes, is the Lifetime ISA value for money for the Government?
No comment on this.
4. Is the Lifetime ISA a suitable pension savings product?
No comment on this.
5. Should the Lifetime ISA be abolished?
No. Certainly not for people who already have one. I would also support continuing to encourage young people to buy a home.
6. Should the Lifetime ISA be reformed to remove the withdrawal penalty?
No, but the penalty is a little harsh. It could be reduced to put savers in roughly the position they would have been in if they had chosen a typical ISA.
7. Should the Lifetime ISA be restricted to those with no access to a workplace pension?
No comment on this.
8. Should the Lifetime ISA house price cap be raised in line with inflation, or removed?
It should be raised in line with inflation, backdated from when the scheme was introduced.
Even if the government has never promised to update the home purchase threshold in line with inflation, savers were entitled to assume that they would. Home price inflation has been high in the UK for many years and it was obvious that the scheme would soon become unfair if adjustments were not made.
The unfairness is particularly noticeable for people living in the South East and in London, where property prices are extremely high. You cannot buy much for £450,000 if you want to live somewhere near the rest of your family and your friends.
The situation for young people in London and the South East is already extremely difficult and the LISA seemed like a welcome bit of help. Now, as a result of not updating the threshold, it has become next to useless and interest that would have been earned in an ordinary ISA is now to be lost unless changes are made. This feels unfair.
9. Should the annual Lifetime ISA limit be raised from £4,000?
No comment on this.
10. Should the Lifetime ISA be reformed in any other way?
The threshold for home purchase should reflect the number of LISA holders buying the home. If two LISA holders are buying together then their limit should be 2 x £450,000.
Doing this would at least alleviate the problem of failing to update the threshold in line with inflation.
January 2025