According to the investment firm, the lifetime ISA should reform by reducing withdrawal fines, abolishing age limits and raising its real estate price cap.
Part savings, partial retirement investment plans have become a “Malmette” product that appeals to some people rather than others, but does not work.
The comments came after the Finance Committee’s review of whether LISA was “fit for purpose.” Members of Congress called for an end to the evidence yesterday.
Currently, the product allows people under 40 to open a Lisa that can accommodate up to £4,000 a year until they are 50 years old. At the end of each tax year, this is a 25% bonus from HMRC.
Depositors can only withdraw their funds from their accounts if they either purchase the first home, live for less than 12 months, or over 60 years of age. Withdrawals for any other reason, a 25% fee is charged.
Since 2018, about 227,000 people have used the product to buy a property using more than £300 million in Lisa’s savings.
Quilter tax and financial planning expert Rachael Griffin said some parts of the product are outdated and need reform.
Griffin said the plan “was hampered by an excessive 25% withdrawal penalty, which unfairly reduces savings contributions and receives government bonuses.
“Reducing this fine will make the product more equitable and easier to access, especially for those facing financial emergencies.”
Rachel Vahey, head of public policy at AJ Bell, added that “eliminating age restrictions can greatly improve the appeal to self-employed workers” as a retirement tool.
Although most people in the investment industry agree that the £450,000 housing price cap for savings plans should be raised to reflect the current housing market.
Quilter’s Griffin noted: “It’s obvious that the product is not delivered as expected. Based on our experience with our customers, we regularly see confusion about dual-purpose designs that try to combine retirement savings with support for first-time home buyers.
“This lack of clarity undermines its effectiveness, leaving many consumers unsure how best to use it.”
Vahey of AJ Bell added: “There is no doubt that Lisa has proven to be a Marmite product. For potential FTB, it can provide a lot of effectiveness for the property ladder. It is impossible to imagine the government scrapping it completely.
“Retraction of the support of renters who want to buy the first home ultimately means that the government replaces it with another plan, introducing chaos and complexity.
“Nevertheless, the flaw in the design means that Lisa is not effective as a retirement savings product. When they face a punitive exit penalty approved by the government, if their plans change unexpectedly, they need to take the money out earlier than they plan if they plan to change unexpectedly. , it made them angry.”
According to AJ Bell, nearly 100,000 unauthorized Lisa withdrawals were made in the 2023/24 tax year.
Former Prime Minister George Osborne launched Lisas in 2016, offering another tax-free savings for retirement, while encouraging people under 40 to save their homes by providing incentives to provide Go up the property ladder.
