Following the Treasury Select Committee’s inquiry into the effectiveness of the LISA, published this morning, Rachael Griffin, tax and financial planning expert at Quilter, has shared her analysis with us on some of the issues involved with LISAs saying:
The Treasury Committee’s report published today into the effectiveness of the Lifetime ISA reflects many of the issues we raised in our evidence, particularly the view that the product is fundamentally flawed and not always delivering good outcomes for savers.
We’re pleased that committee acknowledged Quilter’s evidence on its dual purpose being confusing for savers. In practice, this undermines its effectiveness. Savers are often unsure how to use the product, and that uncertainty can lead to poor decisions.
The withdrawal penalty is also one of the products most pressing problems. It removes the government bonus but also reduces the saver’s own contributions. For those facing unexpected costs or whose house purchase exceeds the price cap, the penalty feels disproportionate and unfair. A simpler system that only recovers the bonus would be far more reasonable.
The report also cites our call to increase age limit, recognising that the current cut-off does not reflect the reality of when people now buy their first home.
Similarly, the £450,000 property price cap also no longer deals with the reality of the ever more expensive housing market. Many who have saved diligently find they cannot use their LISA for the property they need without facing a financial penalty. This undermines confidence in the product and adds to its complexity. There are numerous anecdotes of home buyers being constantly outbid by small sums over the threshold as the other interested party knows that by doing so the other buyer loses their ability to use their LISA effectively tying their hands.
This report should be the catalyst for serious reform. The Lifetime ISA does not sit comfortably within the wider savings system and trying to make it serve two purposes has only added to the confusion. There is a clear opportunity to replace it with simpler, more targeted tools that give people the right support whether they are saving for a home or planning for later life. This should be a major focus of Labour’s upcoming ISA simplification programme this summer.
