A group of MPs has called for the Lifetime ISA to be scrapped, just over a year after it was launched.
In a wide ranging report, the Treasury Committee – a powerful cross-party group of MPs – has called for the abolition of the Lifetime ISA (LISA) due to its “perverse incentives and complexity”.
The group also says that hard-pressed households need stronger action to help them deal with debts and save for a rainy day and a pension.
Lifetime ISAs (LISAs) allow people to save for their first home or their retirement in one pot, and give a 25% bonus worth up to £33,000. But it has been argued they could discourage people from saving into a workplace pension, where they get the benefit of employer contributions into their pot.
For how Lifetime ISAs work, who they’re for, and all best buys, see Lifetime ISAs.
Get Our Free Money Tips Email!
What’s a Lifetime ISA?
Here are the key LISA need-to-knows:
- A LISA can be opened by anyone aged 18-39
- You can save up to £4,000 a year
- You get a 25% state bonus paid on top (up to a maximum of £33,000)
- You’ll pay a penalty if you withdraw the cash for anything other than your first home or before you turn 60.
For first-time buyers a cash LISA can be used towards the purchase of a property worth up to £450,000.
If you’re using it to save for retirement, you can save in it until the day before your 50th birthday, and withdraw the cash and bonus when you turn 60.
What does the Treasury Committee say?
In its report, the committee said: “This inquiry has received strong criticism of the Lifetime Isa over its complexity, its perverse incentives, its lack of complementarity with the pensions saving landscape and its apparent lack of popularity with the industry and pension savers.
“The Government should abolish it.”
The report continued: “Yet there is little evidence that tax relief is an effective way of encouraging potentially vulnerable households to save for a rainy day.
“There is, however, more evidence that cash bonuses and direct matching schemes, such as the Help to Save scheme, are better at helping people build a precautionary savings buffer.
“The Government should update Parliament on the usage of such schemes and its efforts to increase take-up. It should also consider widening the eligibility criteria.”
What does the Government say?
A Treasury spokesperson said: “People deserve choice and freedom in how they save, and the Lifetime Isa does just that. It is an effective way to help people get on the housing ladder or save towards their retirement.
“For every £100 saved, we give a generous £25 bonus, and so far, around £130 million worth of bonuses have been paid to 170,000 investors.”