The Government has rejected calls from the Treasury Select Committee to reform the Lifetime ISA (LISA) despite concerns that the product is failing to target those who most need support and may even disadvantage some savers.
In a report published earlier this year, the Committee questioned whether the LISA is fit for purpose.
It said the scheme’s dual-purpose design – aimed at both first-time buyers and retirement savers – risks confusing consumers and diverting them from more suitable products.
MPs also warned that LISA savings should be treated in the same way as pension savings in the Universal Credit means test.
INFERIOR PRODUCT
Without this change, the Committee argued, LISAs should be labelled as an inferior product and carry warnings for anyone who might one day claim Universal Credit.
Chair of the Treasury Select Committee, Dame Meg Hillier MP, said: “The Government has taken some steps towards improving the Lifetime ISA, but I do not believe they have gone far enough. The Lifetime ISA is a confused product that requires reform.
“Recently published research by HMRC based on a sample of LISA holders found that 87% of those who had used their LISA to buy their first home said that they could have done so without their LISA. Given that the LISA is forecast to cost the Government £3 billion over the next five years, this raises the question whether the LISA is a good use of taxpayers’ money.”
“The Government has an opportunity at the Budget to think again on the LISA for would-be first-time buyers and those saving for retirement alike.”
FIRST-TIME BUYER HELP
Industry leaders argue that, despite its flaws, the Lifetime ISA remains one of the few schemes designed specifically to support young savers and aspiring homeowners.
Brian Byrnes, Head of Personal Finance at Moneybox, says: “Without a doubt the Lifetime ISA is delivering on its original purpose – helping young people save and invest earlier in life towards their first home and retirement.
“And, we also believe its full potential is yet to be realised. With a few simple updates to the product rules, which have not reviewed since its launch in 2017, many more young people could benefit in the years ahead.
“HMRC’s own research recently found that 42% of those not currently holding a LISA would be most likely to open one if the rules were changed so that original savings were not lost when paying the withdrawal charge and we also believe there is a strong case for committing to an annual review of the property price cap to ensure it keeps pace with changing market conditions.”
INVALUABLE PRODUCT
And he adds: “We’ve seen first-hand just how invaluable this product has been in helping hundreds of thousands of young savers build positive saving and investing habits early in life and buy their first home far sooner than would otherwise have been possible.
“Nearly a quarter of a million first homes have already been purchased with the help of a LISA, and the latest HMRC data shows that 1.3 million people are currently saving or investing through one.
“We remain committed to working closely with the Government to champion the needs of aspiring first-time buyers and younger generations nationwide.”
