LISA0209

Written evidence submitted by Michael Johnson

The Lifetime ISA: post-meeting submission

Further to the evidence sessions held on 26 February 2025, please find outlined below a few additional comments for your consideration.

1.                  Asset allocation

You may recall that the question of asset allocation was raised in both evidence sessions, particularly in respect of what savers should be advised to do when the investment timeframe is either unknown, or expected to be short. The latter scenario, perhaps of less than five years, typically arises prior to using LISA funds to help buy the first home. Thereafter, the investment horizon stretches out to (at least) the age of 60, the LISA then serving as a retirement savings vehicle.

(a)               Available from birth, with an initial 18 year investment timeframe

If the LISA were available from birth (as originally proposed), ideally established by default when a baby’s name is registered, then the initial investment timeframe would be at least 18 years, i.e. until LISA funds could first be accessed, at the age of 18.1

This would address today’s concerns about the giving of investment advice to LISA savers because illiquid, unlisted, asset classes would unambiguously fall “within scope”, along with other long-term “real economy” growth assets such as UK infrastructure. This would, of course, resonate strongly with the Government’s productive finance agenda.

1 Parents or legal guardians should have the same parental responsibility as they do in respect of today’s Junior ISA for a child under 16.

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And LISAs from birth would encourage young people into good saving habits early in life, as well as enabling them to benefit from the positive power of compounding over many years.

(b)              Conditional (pre-18) bonuses?

Any cash in a LISA belonging to someone under the age of 18 (in excess of a de minimis amount) should be automatically invested in the LISA provider’s default fund (with the right to opt out, to invest in other assets, but not cash). As I am sure you know, defaults can be powerful; the NEST experience, for example, is that almost all contributions stay in the default fund.

Alternatively, and more assertively, pre-18 contributions (and bonuses) could be made conditional on the LISA being invested into a UK infrastructure fund. Such conditionality could be softened by the inclusion of a £500 “starter” bonus (as per Child Trust Funds).

(c)               Substantial sums for the future

If a LISA were allocated by default at birth, and assuming:

• 700,000 babies are born each year in the UK;
• a 50% LISA participation rate (notwithstanding the £500 “starter” bonus, otherwise foregone); and
• an initial average annual subscription of £500 (+ £125 bonus), then growing at 3% per annum, then

in 18 years’ time there would be 6.3 million new LISA accounts holding £66 billion in assets (assuming 3% annual investment growth). This would come at a “cost” of

£10.5 billion in contribution bonuses and £3.1 billion in £500 “starter” bonuses, spread over the 18 years.

This £66 billion would be in addition to ongoing contributions from those aged over

18. Furthermore, if the early withdrawal charge were reduced to 20% (eliminating the 6.25% “penalty”), and the property price cap were raised substantially it would be reasonable to expect more new accounts, and higher contributions from the over-18s (particularly residents in the South East of England).

The opportunities to attract new investment into domestic assets would be substantial.

(d)              What future the Junior ISA?

If the LISA were available from birth, then the superfluous Junior ISA could be withdrawn from the market, not least as a simplification of the ISA landscape. Given the £9,000 Junior ISA annual allowance, perhaps the Lifetime ISA’s allowance should be increased to match it?

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2.                  The LISA: the upper age restrictions serve no consumer purpose

Age should not be a barrier to opening a LISA (currently 40 years). In addition, preventing savers from contributing to their LISA after the age of 50 creates the ludicrous situation in which LISAs are effectively “parked” dormant for ten years, until they can be accessed at 60. This is an open invitation to disengagement, thereby risking LISAs being forgotten about. We already have far too many forgotten (or lost) pension pots.

A simple ten year “lock-in” of post-50 contributions (and allied bonuses) should be sufficient to dispel Treasury concerns about bonuses being accessed at 60, shortly after being credited to LISAs.

(As an aside, retirement planning should be equalised at 60, as per LISAs, by pushing back the age at which pension pots can be accessed.)

April 2025