LISA0133

Written evidence submitted by Quilter

 

  1. Is the Lifetime ISA fit for purpose in its current design, including as a combined product for house purchase and pension saving?

    As a financial planning business, our experience with clients is that the Lifetime ISA’s dual-purpose design leaves many consumers confused about its intended use, which weakens its overall effectiveness. Rather than attempting to serve as both a first-home and pension savings vehicle, it would be far clearer for consumers to position it and label it solely as a "First Homes Account." This would help individuals better understand its purpose, reducing confusion in an already crowded retirement savings landscape and encouraging greater focus on pensions for long-term retirement planning.

Additionally, considering that the average age of first-time buyers in England was 34 years in 2023-24, with London slightly higher at 35 years, there is a strong case for increasing the age limit for the Lifetime ISA from 39. This adjustment would better align with the reality that people are purchasing homes later in life, providing more flexibility and support for those saving for their first home at an older age. Such changes could enhance the effectiveness of the Lifetime ISA, making it a more targeted and user-friendly product for consumers.

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

    Restricting the Lifetime ISA to the self-employed and those without access to a workplace pension could be a sensible move, but the overall risk of confusion remains especially has people are broadly disengaged with long term saving. It would provide the self-employed with more readily available access to money if they really need it, making it more likely they will save for retirement. However, they would still need to contend with the withdrawal penalty, which risks reducing their savings and potentially leaving them worse off in the long term. The LISA would remain confusing due to the dual-purpose nature of the product. It would be better to put resources into coming up a separate product that helps address the lack of retirement savings amongst those without access to workplace pensions i.e. the self-employed and therefore auto-enrolment. The ‘pension sidecar’, as trialled by Nest, would be a more tailored solution to the self-employed and likely better understood.
  2. Should the Lifetime ISA be reformed to remove the withdrawal penalty?

    The 25% withdrawal penalty is overly punitive, as it not only reclaims the government bonus but also reduces the original savings. For example, withdrawing £5,000 (which includes a £1,000 government bonus) for a non-qualifying reason results in a £1,250 penalty, leaving the saver with just £3,750—less than their original contribution of £4,000. This structure actively discourages use of the Lifetime ISA, especially for those who may face financial emergencies. Reducing the penalty rate would make the product more accessible and attractive, encouraging more people to save for their first home or retirement without the fear of significant financial loss. Simply withdrawing the government bonus would be a better option.
  3. Should the Lifetime ISA house price cap be raised in line with inflation, or removed?

    The fixed £450,000 property price cap no longer reflects the realities of the housing market, where house prices have grown rapidly in recent years. This growth has left many savers who have diligently used the product unable to purchase a home due to the cap, with no flexibility to address the disparity. This can mean they are out competed by buyers who are not using a LISA and can offer just above the threshold. Adjusting the cap to align with house price inflation would ensure the product remains relevant and supportive for first-time buyers without fundamentally altering its structure.

 

January 2025

 

 

 INTERNAL USE ONLY