The Lifetime Individual Savings Account (LISA) introduced in April 2017 by the Conservative government. It has triggered a firestorm of criticism from savers throughout the UK. The LISA was intended primarily for younger people, to encourage them to save for their first home or later retirement. Users can save a maximum of £4,000 annually, and the UK government rewards the savings with a handsome 25% bonus. Yet, the program is now under fire, as more and more participants make an exasperated outcry regarding the program’s restrictive nature and punishments.
When he was in his 20s, Daniel Slavin established a LISA. He’s not alone in really understanding how wonderful this account is. He can start taking withdrawals without any penalty as early as age 60, giving him access to a long-term, growth-oriented savings vehicle. He and wife Lucy Slavin, both 29, are being hit by the £450,000 property cap on LISA withdrawals. This cap has not increased since the product launch.
Since then, only 6-percent of eligible adults have opened a LISA, yet around 1.3 million accounts are still active. 28-year-old user Liam Roberts used his LISA to buy a two-bedroom house in Manchester in 2022. He benefited from a £4,000 government hand-out to help buy his first home! For others, like the Slavins, they’ve reached a stalemate with increasing property values and daunting caps.
The £450,000 cap has been condemned as completely out of touch and not a reflection of the realities of the market. Lucy Slavin noted her frustrations regarding the threshold: “What annoys me is that I bought the home with my now husband and my share is well under £450,000 but of course that wasn’t taken into account.”
The penalties that come with early withdrawals create major hurdles too. Though users can withdraw their funds before the targeted withdrawal age, they incur a penalty for doing so. In addition, they stand to lose 6.25% of their own savings. Lucy Slavin expressed her dissatisfaction with this penalty, stating, “It is incredibly frustrating knowing that if we need to withdraw the money our only option is to lose part of our savings.” She added, “I can understand losing the bonus if you withdraw early but the penalties are awful.”
Martin Lewis, founder of MoneySavingExpert, questioned the fairness of the threshold, saying it was “beyond ridiculous”. He argued that if a LISA is used to purchase a property exceeding the limit, there should not be a penalty, asserting, “They should get back at least what they put in.”
Although many users of LISAs have shared success stories with these accounts, some individuals have faced financial ruin as a result. Holly from London was over £750 worse off when she bought her home in 2023 because of restrictions on her LISA. This gives additional support to the idea that the policy is in urgent need of change.
Helen Morrissey explained that LISAs have worked out to be especially effective for self employed people who do not have access to workplace pensions. The government’s intent behind the LISA initiative was clear: “Lifetime ISAs aim to encourage younger people to develop the habit of saving for the longer term,” stated a Treasury spokesperson. These initiatives were intended to help people purchase their first homes or create a nest egg for their retirement.
As users such as Daniel Slavin have pointed out, government should change its policies to reflect realities in the housing market. He stated, “The current government wants us to buy houses and increase growth and I don’t think they should penalise us for doing the right thing and saving money.”
Debate over possible reform of the LISA framework and its enabling regulations continues. Stakeholders across Doha are on the edge of their seats waiting for word from government powers. A Treasury spokesperson confirmed this sentiment: “We welcome the committee’s report and will now review its findings and respond in due course.”