The influential Treasury Committee has launched a review of Lifetime Isas to see is they remain fit for purpose when it comes to helping people buy their first home and save for retirement.
The Committee, chaired by MP Dame Meg Hillier, has opened up a call for evidence on this issue, asking for feedback on whether the Lifetime Isa (Lisa) remains an appropriate financial product for today’s savers or whether changes could boost its appeal.
The Lisa was introduced by the former Chancellor George Osborne in his 2016 Budget, offering an alternative to pensions for younger savers, and a vehicle to help people save towards a deposit on their first home.
Currently they are only available to those under 40, and offer a 25 per cent ‘bonus’ from HMRC, on savings up to £4,000 a year. This is broadly equivalent to the basic-rate tax relief offered on pensions. A penalty is applied if people access these funds before the age of 60 for any other reason than first house purchase (unless they are terminally ill).
As part of this review the Treasury Committee is looking for information on how well the Lisa operates as a pension savings vehicle, which will include looking at how consumers transition between using a Lisa as a product for house purchase to a product for pension saving.
It will also consider whether there is a case to change to the current Lisa rules and regulations. This will include looking at whether the Lisa should be restricted to those who do not have access to a workplace pension and whether the annual savings limit, penalty for unauthorised access, or maximum house purchase price limit should be changed. The committee will also consider whether this product should be abolished altogether.
Stakeholders across the pensions and savings industry have until 4 February to submit a response.
Industry experts said that the report from the Treasury Committee on this issue could inform government plans to simplify the UK savings system, which may include Isas and pensions.
AJ Bell director of public policy Tom Selby says: “Lifetime Isas are an extremely attractive way for people to invest for the future in specific circumstances, in particularly for first-time buyers looking t building up a deposit.”
He says while Lifetime Isas can offer flexibility to those savings for retirement they aren’t perfect and this review “is a good opportunity to address some of the issues with their design”, as well as exploring how this product fits into a wider simplified Isa landscape.
In particular Selby said he would like to see the end to the punitive early withdrawal penalty and property purchase price limit raised. “Analysis from AJ Bell shows that in numerous areas average flats and terraced houses – the sorts of properties that might well appeal to aspiring homeowners – now exceed the £450,000 cap,” he says.
