LISA0177

Written evidence submitted by Mr Michael Johnson

The Lifetime ISA: addendum to TSC consultation

After I make my submission to your Committee inquiry into the Lifetime ISA (23 January 2025) I was told about the Treasury’s financial inclusion and resilience agenda. This includes looking at ways to encourage people to create “rainy day” savings.

If the Lifetime ISA’s pre-60 withdrawal charge were to be cut to 20% (for purposes unrelated to buying the first home), it could play a significant role in improving financial resilience. Indeed, the LISA has already proven itself capable in this regard, when the charge was temporarily reduced to 20% during the Covid pandemic (6 March 2020 and 5 April 2021).

In the prior year (March 2019 to April 2020), a monthly average of 1,625 people made LISA withdrawals unrelated to a house purchase. In March 2021 that figure had leapt to 10,150 people. Similarly, the monthly average amount withdrawn in the prior year totalled £3.66 million; in March 2021 the figure is £50.59 million. In April 2021 the LISA’s temporary 20% withdrawal charge reverted back to 25%, reintroducing the implicit, and unintuitive, 6.25% withdrawal penalty. Total withdrawals in April 2021 then reduced by a factor of eight, to £6.4 million.

This evidences that the Lifetime ISA could serve as a major plank in the Treasury's financial inclusion and resilience agenda, simply by permanently reducing the withdrawal charge to 20%.

I would welcome an opportunity to give oral evidence to the Committee.

February 2025