.jpeg?width=1200&height=800&crop=1200:800 "Government issues major update on Lifetime ISAs held by 1.5m Britons – UK Times")
The government has given a major update to anyone with a Lifetime ISA (LISA) after announcing plans to scrap them in the Autumn Budget.
Held by more than 1.5 million people, the government-backed savings account, introduced in 2017, offers a unique ‘savings rate’ of 25 per cent, but can only be used to purchase a first home.
Up to £4,000 a year can be deposited into a Lisa, to which the government will add a maximum of £1,000, equalling up to £5,000. The savings accumulated cannot be used to purchase a property worth more than £450,000.
There has been uncertainty around the product since the lead-up to November’s Budget, and that has not entirely gone away with the government confirming it is launching consultations for a new, simpler product to take its place.
But a recent update by HMRC has clarified plans. Most notably, people who already have a LISA can continue to pay into it indefinitely, using it to either buy a first home or for retirement, regardless of any new product hitting the market.
In addition, for those who have been considering opening a LISA but have not yet done so, the Treasury says anyone eligible can do so “until the new product becomes available”.
Part of the reason for developing a new product to replace the LISA is due to criticism over savers being penalised and losing their own money if they breach rules around withdrawing the cash. That will be fixed in any new option, but questions have been asked by industry experts over why the government don’t simply remove that penalty from the existing LISA structure.
“The government will consult on introducing a new, first-time buyer only product that will provide the bonus when a person uses it to buy a house, removing the need for a withdrawal charge and giving savers flexibility in case their circumstances change,” explained the HMRC update.
Brian Byrnes, director of personal finance at Moneybox, said that by the time a new product is made available, it’s likely that up to two million Brits will be using the LISA – and they would then not benefit from any improvements to the system.
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To better serve them, the government should focus on “future-proofing” the LISA through reform, he said.
“Savers can take comfort in the fact that HMRC has clarified people can continue to open Lifetime ISAs until the new product is available, and that existing holders will be able to keep contributing indefinitely.
“This matters not only to the 1.5 million people who already rely on the product, but also to anyone planning to open a Lifetime ISA while a new first-time buyer-specific product is being developed.
“The Lifetime ISA has been hugely successful in helping people save for their first home, but there are small, well-known improvements that could make it work even better for everyone. By the time any replacement product is introduced, around two million people are likely to be using a Lifetime ISA to save for their first home or build their retirement savings, and a new product would not address these areas for enhancement.
“Instead of creating an entirely new product, policy should focus on future-proofing the Lifetime ISA with targeted reforms such as regular reviews of the property price cap and reducing the withdrawal penalty from 25 per cent to 20 per cent, providing certainty for both savers and providers.”
In November, chair of the Treasury Select Committee, Dame Meg Hillier, said: “We concluded that the Lifetime ISA is too complex. One concern we raised related to its dual purpose of saving for both a home and retirement, which results in poor outcomes for savers. We argued that it would make more sense to create two separate, tailored policies which genuinely help people achieve those goals […] [having a] simpler product specifically to help people saving for a home is a step in the right direction. We look forward to seeing what the Treasury proposes next year.”
