If you currently hold a Lifetime ISA—or are considering opening one—it’s worth noting that the Treasury Committee has launched a review to assess whether it still does what it says on the tin. 

The inquiry will explore a number of key issues: Should the £4,000 annual contribution limit be increased? Is the 25% early withdrawal penalty too punitive? Should the Lifetime ISA be fundamentally reformed—or scrapped altogether? 

Originally introduced in 2017, the Lifetime ISA offers a 25% government bonus on savings of up to £4,000 per year, intended for either a first home purchase or retirement. However, withdrawing funds for any other reason (except in cases of terminal illness) results in a penalty that can leave savers with less than they originally contributed. 

The committee is also reviewing the £450,000 house price cap, which has not been updated despite a 40% increase in average property prices since the product’s launch. Raising or removing this cap, along with adjusting the contribution limit, are among the reforms being considered. 

As Matt Burt, Financial Planner noted: “With reforms aimed at making LISAs more accessible and equitable, they could become a more powerful tool for young people looking to save for their first home or retirement.” 

In February, Martin Lewis, founder of MoneySavingExpert.com, addressed the House of Commons Treasury Committee, highlighting significant flaws in the LISA scheme. He emphasised that first-time buyers exceeding the £450,000 property price cap face a punitive 25% withdrawal penalty, effectively losing 6.25% of their own savings. Lewis argued that this penalty is unjust and discourages potential savers, particularly those from less financially educated backgrounds. He also pointed out that the £450,000 cap has remained unchanged despite rising property prices, leading to unfairness and reduced transparency. Additionally, Lewis questioned the age restriction, suggesting that the requirement to open a LISA before turning 40 is discriminatory. He advocated for reforms, including adjusting the property price cap in line with market trends and eliminating the withdrawal penalty for first-time buyers. 

We’re monitoring developments closely. If you’d like to discuss how any changes may impact your financial plan, we’re here to help. 

Disclaimer: This article is distributed for educational purposes and should not be considered investment advice or an offer of any product for sale. This article contains the opinions Citywide Financial Partners and does not represent a recommendation of any particular security, strategy, or investment product. Information contained herein has been obtained from sources believed to be reliable to the best of our knowledge but is not guaranteed.