MPs Call to Scrap LISA Lifetime Individual Savings Account

The Treasury Select Committee (TSC) has asked the government to consider scrapping the Lifetime Individual Savings Account (LISA).

What is a LISA?

In April 2017 (April Fools Day in fact), the Government launched a new type of ISA for 18 to 40 year olds, allowing people to save up to £4,000 pa with an additional 25% bonus added by the Government.  This LISA was available for those who use the amount saved towards buying their first home or towards a pension.

Unpopular

LISAs have proved unpopular given that there is a 25% penalty if you withdraw early without buying a home, meaning you could get back less than you have put in, if underlying investments have fallen in value, or indeed if they have grown and the 25% penalty is larger than the bonus that the government originally gave you.

Many advisers and commentators think LISAs are a miss-selling scandal waiting to happen and the fact that they simply do not sit well alongside normal pension schemes and tax relief, make them difficult to explain and for the consumer to integrate them into any savings and retirement planning regime.

Comment

Our view would be that a full consultation needs to take place before making changes or withdrawal.  The basic concept is good.  The Limit on contributions is to small.  Why would a younger higher earner save in a scheme that attracts 25% bonuses of just up to £1,000 per year, when they can save up to £40,000 pa in a pension with full tax relief up to 45%.  The reality is that perhaps a total review of the whole retirement and savings regime is required with flat rate relief of say 30% across all pensions and 20% across ‘property’ purchase ISAs might make the solution easier to separate and administer.  OR indeed a flat rate of 20% tax relief for all with an additional 10% bonus when you retire.