Written evidence submitted by Metropolitan Police Friendly Society

Firm Background

We are the Metropolitan Police Friendly Society Ltd. We trade as Metfriendly. Our firm number is 496F.

We are a mutual friendly society and have traded for 131 years.

The Society offers unique police-friendly financial products and services to serving and retired police officers, police staff and their families. The Society provides medium to long-term savings and investment products as well as protection policies. Most of our savings and investment products are with-profits, which means they are designed to deliver a cash-beating steady return over the medium-to-long term while protecting savings value (e.g. from death) and smoothing the peaks and troughs of equities. In addition, the Society offers long-term protection products such as life insurance, income protection and critical illness cover.

Within our product range we provide a Lifetime ISA (LISA). We have provided this product to our members since 2017. This product is popular with our members, with several thousand of them having LISAs to help them save for their financial future. We have already helped 30% of those members with a Metfriendly LISA product to buy their first property, which will have added significant upstream benefit to the UK economy.

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

The principles originally set out in the product are excellent and still necessary but is no longer aligned to the property market which it aims to support. This is because the LISA has a property cap of £450,000 for first-time buyers, which is too low for many parts of the country. For example, in London, the average property costs £516,000, and the average first-time buyer pays £465,000 (October 2023).

The property price cap has been frozen since its launch in 2017, whilst at the same time property prices have risen significantly. Land Registry house price statistics data for the UK suggests there has been an increase of 29% from 2018 to the end of 2023. This would mean that the current £450,000 limit needs to rise to £580,500.

Those individuals who spend over the £450,000 property cap face a 25% penalty charge for an ‘unauthorised withdrawal’ when they use the funds they have saved over years as a property deposit. This leaves them with less than they saved, so they effectively pay the Government for using a scheme that did not provide what they needed, and what the Government intended.

With any retirement planning it is sensible to have a range of products, such as a LISA and a workplace pension, in order to prepare for retirement. As consumers enter their 50s they are typically in a better position to increase their savings for retirement and the annual statements that we provide encourage consumers to continue to build their savings. The upper age limit of 40 for opening a LISA and 50 for making contributions is restrictive for some in reaching their goals and could be considered in any wider review.

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

72% of our Lifetime ISA applicants have applied looking to purchase their first property, 12% are saving towards 60 and 16% have chosen both. There are further members who later restart contributions as they look to supplement their retirement income.

The majority of our members are police officers and staff with comprehensive pension arrangements. However, as the benefits reduce with shorter periods of service the LISA product can play a vital role. Our LISA is popular with family members and support staff who don’t have the same pension provision.

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

Yes. Encouraging the UK consumer to save presents significant value for the wider economy. Individuals with savings, even if the savings were intended for other reasons, reduce the draw on other public funds in times of personal need.

We believe that saving is about creating a long-term habit. Encouraging consumers to save early with an incentive has multiple benefits over trying to encourage saving later in life when other lifestyle needs are created. As mentioned in question 1, encouraging this habit as early as possible alongside other products such as pensions creates positive outcomes later in life.

Specifically incentivising individuals through the LISA product to save regularly for their first home also has very positive & direct impact on the economy. The housing market is a significant contributor to the UK economy creating jobs for the private & public sector while raising material levels of direct and indirect taxation income. Any trigger that supports this sector should be valued and nurtured.

Is the Lifetime ISA a suitable pension savings product?

Feedback from our members that have used the LISA product have stated that they feel it works well in pension planning alongside other solutions. In addition to this, the “emergency fund” comfort that it gives some individuals is a strong benefit that traditional pension products do not provide for.

The flexibility and control of the product for simple transferring between providers also adds value as a long-term savings product potentially as part of wider and balanced pension planning.

Should the Lifetime ISA be abolished?

No. The product provides meaningful incentives for consumers to save for a property. Owning a property is a life goal for many of the UK population and represents personal wealth and achievement. Owning a property is key for so many families that allows them to continue to invest in their home through improvement. In turn the wider economy benefits via property taxation, lending & insurance and creating a viable property market that supports UK growth.

Home ownership is the largest investment many people will ever make. Having such a large capital asset in later life to call upon for retirement, health care and other life events is invaluable.

Should the Lifetime ISA be reformed to remove the withdrawal penalty?;

And question 8 - Should the Lifetime ISA house price cap be raised in line with inflation, or removed?

The government bonus is an important element for encouraging people to save for two significant life events and it is important to have controls that do not weaken the home-buying and retirement aims, but there are sometimes circumstances outside of savers’ control that require them to access their money. In these circumstances, the saver shouldn’t be “punished” for trying the save in the most effective way but should also not benefit from the government top-up. The penalty should be removed, but the government bonus (and its associated growth) should still be returned for a withdrawal other than for house purchase and at age 60.

With regards to the house price caps, there are three potential options that would make a significant difference and ensure that the LISA continues to be a popular product, providing the incentive and support as intended when it was originally launched:

•Increase the current cap from £450,000 to reflect current property prices in London and other areas where first-property prices are above £450,000. This limit could be increased on an index-linked basis to house prices backdated to 2018. Using the Land Registry house price statistics data for the UK suggests increase of 29% would suggest this £450,000 limit needs to rise to £580,500.

•A simple solution would be to switch the current £450,000 property cap to a personal limit of £450,000 so those buying together can combine their limits to purchase their first property, so two individuals could use their LISA savings to purchase a property up to a £900,000 cap without incurring a penalty charge. This will continue to secure the upstream benefits of the housing market.

•The final proposal would be to remove the property cap completely. This would simplify the whole first home buying process and not introduce any doubt or concern for potential savers who may be saving up for many years to buy their first home and supports the Financial Conduct Authorities’ Consumer Duty requirement of a product continuing to offer expected value through its life. The annual contribution limit cap controls any Government exposure in terms of having to fund additional bonus contributions and the requirement to use the funds for a first-property purchase limits the potential for misuse.

Introducing such reforms would make a real difference to many looking to use this product to buy their first home. Changing this limit would help many first-time buyers, including Police Officers, demonstrate the Government’s recognition of the work that our Police Officers do and reinforcing the commitments made in the Police Covenant to support Police Families.

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

One of the strong features of the product is the availability to a wide range of consumer demographics. The product helps mainly lower paid individuals save for their first property. To buy a property consumers would typically use a mortgage and to qualify for a mortgage are likely to need to be in employment and therefore will have access to a workplace pension. Restricting the product to those without a workplace pension will make the product unavailable for vast majority of first-time house buyers and reduce the wider economic benefit to UK growth.

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

Repeated from question 6:

There are three potential options that would make a significant difference and ensure that the LISA continues to be a popular product, providing the incentive and support as intended when it was originally launched:

•The final proposal would be to remove the property cap completely. This would simplify the whole first home buying process and not introduce any doubt or concern for potential savers who may be saving up for many years to buy their first home and supports the consumer duty of a product continuing to offer expected value through its life. The annual contribution limit cap controls any Government exposure in terms of having to fund additional bonus contributions and the requirement to use the funds for a first-property purchase limits the potential for misuse.

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

The limit should keep pace with inflation to ensure the product remains a valuable incentive to save. In conjunction with raising or removal of the property cap (answers to questions 6 & 8), raising the contribution limit would see a positive stimulus in the wider economy and provide financial security for a greater percentage of the UK population.

Should the Lifetime ISA be reformed in any other way?

An extension of the current age ranges would allow for greater access to the product benefits. As the ever-increasing cost of living impact’s savings ability, increasing the age for use against a property will allow greater time to save, probably while paying rent, and add further positive impact on the economy.

With an increasing population age, pension planning also now links to future care needs. These can range from home care to residential care. Expanding the product to capture these could potentially provide wider benefit.

Extend age eligibility of the product and expand the features for care fees as authorised withdrawals.

The current impact to the Treasury of care is significant and consumers like to have choice and control over their future care needs. By allowing these life events into the product will provide some easing to the public funds that are currently used to pay for care.

February 2025