The Treasury Committee has launched an inquiry into whether the Lifetime ISA remains fit for purpose, seeking evidence from the finance industry, consumers, and experts.
Introduced by former Chancellor George Osborne in the 2016 Budget, the Lifetime Individual Savings Account (LISA) was designed to help younger people save for retirement and property purchases.
The account allows individuals under 40 to save up to £4,000 annually until age 50, with HMRC providing a 25% annual bonus on contributions.
While the scheme offers attractive incentives, it comes with strict rules. Withdrawals are penalty-free only if used to buy a qualifying first home (up to £450,000) or for retirement after age 60. Otherwise, savers face a 25% penalty on withdrawn funds.
Money-saving expert Martin Lewis has long called for an overhaul of the Lifetime ISA system, previously describing it as “dead-duck” product. He argues the financial landscape has changed significantly since it was introduced nearly a decade ago.
The committee aims to assess whether the product’s restrictions and benefits align with its original goals of promoting homeownership and retirement savings.
Analysts have welcomed the review, urging the Government to look into reforming and simplifying the product.
Tom Selby, director of public policy at AJ Bell, said: “Lifetime ISAs are an extremely attractive way for people to invest for the future in specific circumstances. For first time buyers in particular, a Lifetime ISA is a brilliant way to build up a deposit for a first home and benefit from a sizeable Government bonus, as well as enjoying the ability to invest tax free like a conventional ISA.
“However, Lifetime ISAs aren’t perfect and this review from the Treasury Committee is a good opportunity to address some of the issues with their design, as well as exploring where the Lifetime ISA fits in a simplified ISA landscape.”
He added: “AJ Bell has long campaigned for an end to the punitive early withdrawal penalty, instead reverting to the system used during the pandemic when the penalty only matched the original bonus received on the account.
“Likewise, raising the property purchase price limit, which has remained fixed since the Lifetime ISA was introduced, would be an obvious quick win. 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.”
Amelia Murray, money expert at Be Clever With Your Cash, said: “The early withdrawal penalty has always been unpopular and despite house prices increasing significantly since the LISA was launched, the property purchase limit hasn’t.
“It means aspiring home owners have a much more limited choice of what property they can actually buy with their LISA savings, which defeats the point.”
“I’m really pleased the Treasury Committees has launched this enquiry giving everyone a chance to give their views on whether LISAs are still fit for purpose nine years later and whether they should be reformed.”
