Workplace savings provider Cushon is calling for a reduction in the withdrawal charges imposed on Lifetime Isas (Lisa), to support UK savers during the cost-of-living crisis.
These calls are backed by Michael Johnson, who worked with the Treasury to help create the Lisa, and who is now an adviser to Cushon. He says that the current penalty structure goes against his orginal proposals for this savings product.
Currently, a 25 per cent penalty is imposed on Lisa withdrawals before the ago 60 — with the only exception being for funds used to help savers buy their first home.
Previously the Treasury announced a temporary reduction in the charge to 20 per cent in March 2020, designed to help savers during the pandemic. This effectively meant savers lost the government ‘top-up’ —paid on contributions of up to £4,000 a year — but they did not face further charges to access their money.
This charge went back to 25 per cent in April 2021.
Cushon is calling for another temporary reduction, with new research to showing a quarter (26 per cent) of people are going to have to rely on their savings to survive financially this year.
Its research also shows that 67 per cent of people feel anxious about their finances and nearly eight in 10 (77 per cent) are planning to reduce outgoings to get through the current crisis.
Lisa creator Michael Johnson adds: “The Treasury should reduce the charge to access Lisa savings (before the age of 60) from 25 per cent, to 20 per cent, as I originally proposed to the Treasury.”
“The 25 per cent, charge has an implicit 6.25 per cent, penalty which adds to complexity and serves no purpose for savers. It also undermines a fundamental objective that I set for the Lisa: the ability to take money out easily. Knowing that these savings could be accessed without penalty (other than simply repaying the bonus received) would encourage more people to save more, and would therefore be cost neutral to both parties — saver and the Treasury.”
Cushon head of policy & research Steve Watson says: “As a result of the cost of living crisis, millions of people across the UK have been forced to either cut back, rely on credit or dip into their savings to help them get by.
“With energy bills set to soar again in October, helping people to unlock access to savings that can help them weather this storm should be a priority for the Government. We strongly urge Government to consider another temporary reduction in the Lisa penalty so people can access their own money without charge, and reduce the risk of people turning to credit.”
