LISA0170
Written evidence submitted by Anonymous
Formatting note: I think my submission will make more sense if I sometimes cover multiple questions in one paragraph, and don’t cover the questions in numerical order. The question numbers in the Call for Evidence correspond here to numbers in square brackets, e.g. [Q1].
About me:
I heard about this through Meg Hillier MP’s newsletter, and I like thinking about policy. I have some savings in a Lifetime ISA, but I’ve decided to stop adding new savings to it. I now instead contribute to IFISAs and cash ISAs.
I work in data-driven systems change at the head office of a large supermarket. I’m 29, and my salary is £55k plus a ~£10k annual bonus.
My experience of the LISA: I opened my Lifetime ISA in February 2021, intending to save for a flat. I’ve paid £15000 in. The pot is currently worth £20053. I paid in the maximum £4k in each tax year of 2020/21, 21/22 and 22/23, then £3k in 23/24. I became less certain the LISA was worthwhile, so I decided to stop contributing. On top of the £20k in the LISA, I have another £30k of savings in cash ISAs and IFISAs, and my savings are increasing by roughly £10k per year.
Lifetime ISA for buying a home: I started the LISA with a dream of owning a flat in London one day. I currently have £50k of savings which I could put towards a deposit (including the LISA and other ISAs).
[Q1] I stopped savings into my LISA for 3 reasons:
1) I’m not sure I’ll ever be able to afford a flat, so it’s risky.
2) Even if I can afford a flat, it might be above the LISA price cap by then, so it’s risky.
3) Impactful ethical investments aren’t available through a LISA.
To elaborate on those 3 points:
1) [Q6] [Q8] I’m not sure I’ll ever be able to afford a flat, so it’s risky.
Will a flat ever be in reach? London is the only place that feels like home, my family can’t help me financially, any potential inheritance would be decades in the future, and buy to let landlords are pushing up house prices while squeezing as much rent out of us as possible. So saving into the LISA is a gamble based on future supply, demand and government policy. If I can somehow buy, I gain the 25% bonus. If I can’t buy and withdraw, the withdrawal penalty means I effectively lose 6.25% (1.25*0.75 = 0.9375).
2) [Q6] [Q8] Even if I can afford a flat one day, it might be above the LISA price cap by then, so it’s risky.
The frozen LISA price cap is concerning. I don’t feel like £450k will be useful for long in London – again, making the LISA a gamble. Perhaps some kind of price cap is useful to avoid people who could have afforded a home anyway from benefitting too much from public money. I think the price cap threshold is just about fine for now, but should regularly increase in line with house prices. Arguably £450k is huge in some places (such as where I grew up, in South Lincolnshire), but I’d be wary of a price cap varying by area – that might incentivise people to move to areas where prices are already high!
3) Impactful ethical investments aren’t available through a LISA.
My LISA is through Hargreaves Lansdown, where I have chosen a variety of climate-focused and ESG funds. Since I stopped contributing to the LISA, I instead use IFISAs to make productive things happen more directly, building a future I want to live in: Solar for Schools bonds through Ethex, and ethical savings through a Triodos IFISA. I wish both were available through the Lifetime ISA.
[Q2] [Q4] Lifetime ISA as pension: I’m a higher rate taxpayer, with a 7.5% matched contribution from my employer. So the Lifetime ISA is not appealing for my pension. If I give up on buying a home, I’ll withdraw the money if I really need it (suffering the effective 6.25% penalty), or otherwise leave it until I’m 60.
[Q3] Value for money: Where generous tax benefits are offered for LISAs and other ISAs, and the money presumably tends to sit in the account for a while, I think we could ask questions about what those savings do while they’re in the account. In 2022-23 alone, £1.9bn was added in to LISAs, and £69.8bn into other types of ISA [1]. If the 25% LISA bonus and ISA tax-free status had ethical strings attached, they would still be very attractive while helping provide capital to invest towards the future – maybe some kind of green bonds towards net zero, or bonds to build the social housing we desperately need. Feels very appropriate for people with a LISA, who want to either buy a home or plan ahead for their retirement!
[Q6] Withdrawal penalty: Completely removing the withdrawal penalty would mean that any under 40s (including ones who already own a home) could just pay in, get the bonus, then withdraw – this would be bad value for public money, and bad for first time buyers! But if the penalty were 20% (instead of 25%), then that would cancel out the bonus. In this case, the LISA would no longer feel like a gamble, and I would consider investing again.
[Q5] Should the Lifetime ISA be abolished? Not without very meaningful action to make home ownership achievable for first time buyers, such as mass public housing for all, rent controls, or much higher stamp duty for people who own multiple homes.
[Q9] Should the annual Lifetime ISA limit be raised from £4,000? I’ve been consistently saving around £10k per year, so this would personally give me more chance of buying a home if my other LISA concerns were addressed. I would rather a high-earning first time buyer can get a home, instead of someone who already has a home buying additional property. But as the limit increases, the extra benefit can only be accessed by those who have the most to save, so it widens inequality between people within the LISA.
Committee, feel free to contact me if you want more information!
[1] https://www.gov.uk/government/statistics/annual-savings-statistics-2024 ->
Individual Savings Account (ISA) tables: September 2024
February 2025