Working to improve the Lifetime ISA
We want to help our generation invest for their future. And we’re determined to help you as much as possible by providing the tools and information to support your investing journey.
We also spend time working with others – like policy makers, and government – to help make investing simpler for you. We recently visited the Treasury to share our views on how the Lifetime ISA could be made more attractive and useful to millions of investors.
We believe the Lifetime ISA is a good product to help you save for a first home or retirement. But having spoken with many of you, we believe it could be better, and that’s why we went to the Treasury to see if changes could be made in the forthcoming budget.
Our recommendations are:
1. Eliminate the withdrawal penalty
We think investors should have penalty-free access to their money. It seems both unfair and unattractive that the 25% ‘bonus’ followed by a 25% ‘withdrawal charge’ actually results in a ‘penalty’ of £6.25 for every £100 invested. Reducing the withdrawal charge to 20% would eliminate this implicit penalty, be cost-neutral to the Treasury and, most importantly, encourage more of you to invest.
If introducing penalty-free access is difficult in the immediate term, we’ve suggested increasing the breadth of allowable withdrawal events. Our top suggestion is to include the birth of a child as an allowable event. After home buying, providing for children is a top priority for many of you and this would be a great way to further encourage long-term savings.
2. Index link the house price cap
We think the £450,000 house price cap should be linked to a house price index. The average price for a first-time buyer in London is £420,000 meaning that the £450,000 cap creates understandable concern that even a small increase in house prices could result in LISA savings being impossible to access without penalty. Index linking would provide more clarity for first time buyers and encourage more of you to invest.
3. Include LISA in auto-enrolment
In the longer-term we’d encourage building on the success of the pension auto-enrolment and allow a portion of employer/employee contributions to go directly into a LISA. This would significantly increase engagement and give you an added boost towards saving for your home deposit.
We don’t know what the Treasury will do, but we will continue to campaign for improvements to the Lifetime ISA and other savings accounts so that we can help our generation confidently invest for their future.