LISA0134

Written evidence submitted by Anonymous

LISA Select Committee Comments

Comments submitted on behalf of my daughter who has 2 LISAs, 1 Cash and 1 Stocks and Shares:

Inability to Transfer a Cash LISA to a Stocks and Shares LISA

It is crucial to address the limitation that prevents the transfer of a Cash LISA to a Stocks and Shares LISA, particularly when it becomes evident that the LISA will serve solely as a pension vehicle. This issue arises in instances where the LISA does not qualify for a house purchase. The flexibility to transfer between these two types of LISAs would provide greater financial control and appropriate investment strategy for long-term savings.

LISA as Savings and Means-Tested Benefits

The current classification of a LISA as savings by the Department for Work and Pensions (DWP) significantly impacts means-tested benefits. The existing 25% penalty for early withdrawal is excessively punitive and should be reconsidered. It is suggested that this penalty be reduced to a maximum of 20%, as was temporarily implemented during the COVID-19 pandemic. This adjustment would alleviate the financial strain on individuals relying on these savings.

Recent Withdrawal Experience

Highlighting a recent incident, my daughter withdrew £4,000 to utilize this year's allowance and fund her Stocks and Shares LISA, since a direct transfer was not permitted. She incurred a penalty of over £1,300 to net £4,000. This substantial penalty illustrates the urgent need for policy revisions to support better financial outcomes for LISA holders.

Cash as a Long/Medium-Term Investment

It is widely acknowledged by financial advisors that cash is not a suitable long or medium-term investment. Consequently, if a LISA is not eligible for a house purchase, there must be alternative options for these funds. Without such options, the real value of the investments diminishes over time, rendering them practically worthless. Ensuring the availability of viable investment alternatives within the LISA framework is essential for preserving the value of these savings.

These points underscore the necessity for policy adjustments to enhance the flexibility, fairness, and long-term benefits of the LISA framework for individuals relying on these vehicles for their financial security.

January 2025