The Lifetime ISA (LISA), designed to help under-40s save for their first home or retirement, has come under scrutiny from MPs who say it risks leaving some savers worse off. The Treasury Committee has warned that early withdrawals can result in a loss of 6.25% of an individual’s own contributions, due to penalty charges, and that the product’s complexity could mean it is not suitable for everyone.
Introduced in 2017, the LISA allows savers to deposit up to £4,000 annually, with a 25% government bonus. However, with rising house prices, concerns have been raised about the £450,000 property limit, unchanged since the scheme’s launch. The committee highlighted that more savers are being hit by withdrawal charges than are successfully using the LISA to buy a home, signalling the scheme may not be functioning as intended.
MPs also criticised how LISA savings can affect eligibility for benefits such as universal credit, unlike other pension savings, calling the situation “illogical”. They argued that unless this is addressed, clearer warnings about the drawbacks should be provided to potential savers.
The government has said it will consider the findings and review options for future reforms. It remains committed to supporting people in developing good savings habits while aiming for fairness and value for taxpayers.
