UK Parliament’s Treasury Select Committee has published a report on the Lifetime ISA (LISA), warning that its dual purpose of supporting first-home purchase and retirement saving may steer consumers into unsuitable strategies and expose part of their savings to avoidable risk. The Committee argues that cash LISAs may suit shorter-term homebuying goals but can be a poor fit for retirement saving because they cannot invest in higher-risk, potentially higher-return assets such as bonds and equities. It criticises as “nonsensical” the treatment of LISA holdings in means-tested benefits, where LISA savings can affect eligibility for Universal Credit or Housing Benefit unlike personal or workplace pension schemes, and concludes LISAs may have been mis-sold to people who are or may become eligible for these benefits. The report also highlights the 25% charge for unplanned or unauthorised withdrawals, which can leave savers worse off than their original deposits by effectively removing the government bonus and 6.25% of the saver’s own money; in 2023–24, unauthorised withdrawals (99,650) almost doubled home-purchase uses of LISAs (56,900). It questions value for money given Office for Budget Responsibility projections that bonuses will cost around GBP 3 billion over the five years to 2029–30, and urges the Treasury to measure and publish LISA usage by income bracket to assess whether support is being well-targeted. The Committee calls for LISA reform in the context of imminent government ISA reform and says that, if benefit eligibility rules are not changed, the product should be clearly labelled as inferior for those who may at any point be eligible for Universal Credit or Housing Benefit.
UK Parliament 2025-06-30
UK Parliament's Treasury Select Committee urges reform of the Lifetime ISA over suitability, benefits eligibility and withdrawal charges
The UK Parliament's Treasury Select Committee report on the Lifetime ISA (LISA) highlights concerns over its dual purpose for home purchase and retirement saving, which may lead to unsuitable strategies and expose savings to avoidable risks. It criticizes the impact of LISA holdings on means-tested benefits eligibility and the 25% charge for unplanned withdrawals, questioning the product's value for money. The report calls for LISA reform and clearer labeling if benefit eligibility rules remain unchanged.