The total value of Lifetime Isa (Lisa) withdrawal charges hit just over £75.2 million in 2023-24, nearly 40% higher than the previous year when they totalled £54.3 million. Some finance experts said the figures from HM Revenue and Customs (HMRC) highlight the need to reform Lisas, which help people to save for their first home or their retirement.
Withdrawing cash for any other reason, unless someone is terminally ill, can trigger a penalty. The total value of withdrawal charges in 2023-24 was £75,272,000, up from £54,328,000 in 2022-23. Some 56,900 people used their Lisa to buy their first home in 2023-24, and under Lisa rules, the home must cost £450,000 or less. However, 99,650 people made unauthorised withdrawals during the same period.
Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, commented on the situation: “The Lifetime Isa is proving hugely useful with almost 57,000 people using one to help them get that all-important first step on the housing ladder in 2023/24.” She pointed out the need for improvement: “However, there’s massive room for improvement as around 100,000 people made an unauthorised withdrawal from their Lisa during the same period and got clobbered with a withdrawal penalty.”
Morrissey stressed the need for reform: “It’s clear the Lisa has huge potential to help people meet their home owning and retirement needs but reform is needed.” She mentioned the issue with penalties: “Reducing the exit penalty from 25% to 20% would ensure that only the effect of the Government bonus is removed rather than your own money and encourage more people to use a Lisa for retirement safe in the knowledge that they won’t lose any of their own money should they need to access it early in a time of need.”
Expanding on the potential for Lisas, Morrissey pointed out: “Lisas are building in popularity; the data shows a record £2.4 billion was paid into Lisas in 2022-23.” She suggested further changes: “Allowing people to open and contribute to a Lisa up until the age of 55 would open this product up to even more people.”
These proposed changes could particularly benefit the self-employed, who may prefer the flexibility of a Lisa over a pension. The suggestions aim to encourage more people to save for their future and utilise Lisas effectively.
The reform of Lisas could have a significant impact on incentivising savings and helping individuals meet their financial goals, especially in the realm of homeownership and retirement planning. With a growing interest in Lisas and their potential benefits, the call for reforms to make them more accessible and user-friendly has garnered support from financial experts and individuals alike.