LISA0167

Written evidence submitted by Anonymous

Background

I’m in my 30s, live in London and I have been working full time since 2014.

I opened my Lifetime ISA in 2019 aiming to save for my first property.

I have been contributing the maximum £4000 every year since account opening.

At the end of 2014 I purchased my first home but because prices in London are so much higher than the rest of the UK and it’s almost impossible to find anything under or close the £450 000 price limit, I had to pay high withdrawal penalty. In the end having Lifetime ISA didn’t help me at all , didn’t serve it’s purpose and I was actually worse off as I had to withdraw less money than I originally put. Therefore, I’m calling for an urgent reform to the Lifetime ISA and its purpose.

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

No, the Lifetime is not fit for purpose in its current format. It is now outdated as it hasn’t caught up with increased property prices, inflation and higher cost of living.

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

 My impression is that most people use it for house purchase rather than pension savings. However, due to high property prices they are forced to pay a penalty that eats in their own savings in the end.

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

 It might be value for money for the Government but it’s not good value for money for the end customer.

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

Although it has pretty good return 25% as government bonus very few people (mostly self employed/ who do not save into a private pension) would benefit in the long run due to the overall low interest rate on the account. Employers generally offer better pensions which can match contributions and money invested in funds grow at a faster rate long term which outweighs the advantages of the 25% return (capped at £1000/year).

5. Should the Lifetime ISA be abolished?

 I don’t think it should be abolished all together, but it should be reformed to stay in line with the economy, regional differences and ensure it’s fit for purpose for the end consumer.

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

 Yes, the penalty should either be removed or lowered. It makes no sense to penalise consumers who have saved so hard in it only to take out less money than they originally put in the account.

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

Potentially, this could be a good option for self employed people but I think then it should also allow for more contributions per year (not £4000) as the current limit would never allow someone to build a healthy pension pot.

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

 Absolutely, the property price cap should be raised in line with inflation and current property prices. When it was first introduced in 2017 property prices were not at the same level they are today which has led to many withdrawing savings and paying high penalties.

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

 It will be good if the contribution limit is raised but I think it’s more important to raise the property price limit and/or lower withdrawal penalties.

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

Yes, it should be reformed to reflect regional differences. Property price caps in and around London are not the same compared to the ones in other regions in the UK. A reform is needed to align these stark price differences and really encourage people to open and save in Lifetime ISA.

February 2025