LISA0197

Written evidence submitted by Funmi Olufunwa, Hoops Finance Limited

WHO AM I?

My name is Funmi Olufunwa and I’m a consumer finance lawyer, financial coach and qualified mortgage advisor. I run a financial education business called Hoops Finance which I founded after identifying a gap in financial literacy and confidence among children and adults. I now teach personal finance workshops in schools, workplaces, community groups and online.

RESPONSE TO QUESTIONS

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

The Lifetime ISA is a great product for many first-time buyers and people saving into a pension but it does not work for all. See response to Q5.

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

Most clients I have spoken to use the Lifetime ISA to save for their first home. The only time I've been told that it's being used for pension saving is when someone is buying a property above the £450k cap and they decide to leave the money in the product instead of incurring the withdrawal penalty.

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

I'm not in a position to comment on this.

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

It will be for some but not all. If you're a basic rate taxpayer, the Lifetime ISA offers you the same tax relief that a pension would offer. However if you're a higher or additional rate taxpayer, a pension would be a better option from a pure financial point of view as the tax relief on a pension would match the income tax paid which is more than the 25% Lifetime ISA bonus. 

5. Should the Lifetime ISA be abolished?

As mentioned above, the Lifetime ISA does work for many people so I don't think it should be abolished. I think that changes should be made to how it works so that more people are able to use it and benefit from it as a savings product. 

Suggested changes listed below:

• Reduce the withdrawal penalty so the bonus is recouped but the account holder doesn't end up with less money than they originally put in.
• Ensure that the house price cap reflects the average value of houses. The £450,000 price cap has not been increased since 2017 when the product was launched so doesn't take account of house price inflation over the past 7-8years. While £450,000 ca still very easily buy a home in many areas, in expensive towns and cities (e.g. in London and the South East), finding a home at this price point that you can stay in for many years to come can be a challenge. First-time buyers are getting older as it's taking longer and longer to save for a deposit. Because of this, they're more likely to be buying in a couple and may even have children so they're looking for a bigger, longer-term home not a cheaper, starter home that they'll be moving from in a couple of years. 
• 12 months wait before the Lifetime ISA can be used. The reason for this as a requirement is unclear to me and I wonder if it really matters how long it has been since the account was opened and money deposited.
• Remove the upper age limit so people over 40 can open, contribute to and benefit from the product. We know that the average age of first-time buyers is increasing, and it seems unfair that over 40s are excluded. 

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

Yes. It is unfair that sometimes ends up with less money than they originally put in because they choose to withdraw that money or e.g. because the property, they want to buy exceeds the house price cap that hasn't moved since 2017 when house prices have increased significantly since then.

If a withdrawal penalty remains, it should result in only the bonus being removed and so the account holder shouldn't get back less than they put in. 

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

I don't see the need to do this. There may be reasons why people prefer to use the Lifetime to save for later life than a pension e.g. the perceived simplicity compared to a pension. If people are planning to use the Lifetime ISA for retirement, I think they should be encouraged to think about opening a S&S version of the LISA instead of a cash version to maximise the potential for growth, although I appreciate the concern with potentially straying into advice territory.  

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

I think it should rise in line with house price inflation not CPI inflation.  

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

Yes. As the Lifetime ISA forms part of the overall £20,000/yr ISA allowance, I don't see why the limit couldn't be raised from £4000. However, I don't believe that the 25% bonus should apply to that full £20,000 as the liability for the government would increase significantly. Perhaps various bonus percentages could be tested to see what would be workable.

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

See response to Q5.

February 2025