The Lifetime Individual Savings Account (LISA) has sparked a range of opinions among young savers since its introduction in April 2017 under the then-Conservative government. By engaging Millennials and Gen Z early, LISAs encourage them to save for their first homes or retirement. They even triple your contribution with a government bonus! Still, there has been mass confusion and anger among users about key restrictions and penalties imposed by the account.
Since he set up his LISA in his 20s, the 28-year-old Daniel Slavin will be able to start drawing money out without penalty once he turns 60. This feature reflects one of the main objectives of LISAs: to encourage long-term saving habits. Others report this hasn’t been their experience. Liam Roberts, for example, was able to find wide successes with his LISA. In 2022, he purchased his own two-bedroom residence in Manchester. Combined with his cash savings, a £4,000 government bonus helped him make the mortgage deposit.
That made all the difference in the world’s support from the government to be able to purchase a home, Roberts remarked.
Lucy Slavin, Daniel’s wife, believes the guidelines regulating LISAs should be changed as a matter of urgency. She noted that she and her husband were able to purchase a home together. Unfortunately, her share was far below the £450,000 maximum property value allowed for a LISA, and this fact was missed during the application.
I initially purchased the property jointly with my soon-to-be-husband and therefore my equity is considerably less than £450,000. How could that not be considered?! Lucy Slavin stated.
Too many first-time homebuyers have faced challenges due to LISA rules. Holly, who lives in London, lost around £750 when she bought her home earlier this year as a result of these regulations. The government incentivises savers to put money into a LISA with an annual contribution limit of £4,000. They throw in a 25% bonus right off the bat! Early withdrawals come with a hit—penalizing withdrawers by removing 6.25% of the saved dollars.
“It is incredibly frustrating knowing that if we need to withdraw the money our only option is to lose part of our savings,” Lucy Slavin added.
Martin Lewis, founder of MoneySavingExpert, has previously raised alarms about the current LISA structure. He called the £450,000 cap “unfair.” He proposed alternative changes to the existing system that would result in a less discriminatory experience for users.
If a LISA is used to buy a house over the threshold, there will be no penalties incurred. At a minimum, the buyer should get back what they put in. Lewis commented.
He stressed that the imperfections in the current LISA design deter young people from utilizing these accounts. This is especially the case for those with lower-income backgrounds, who tend to have a higher aversion to financial risk.
This failure doesn’t only shortchange LISA holders. It puts off many young people, especially from lower-income backgrounds, who tend to be more risk averse, from opening LISAs in the first place, Lewis explained.
Helen Morrissey, head of retirement analysis at Hargreaves Lansdown noted how LISAs are becoming increasingly popular. While they still face some challenges, many self-employed workers are seeking them out to shore up their retirement savings.
“Lifetime ISAs aim to encourage younger people to develop the habit of saving for the longer term, helping them to purchase their first home or build a nest egg for when they are older,” a Treasury spokesperson asserted.
It’s telling statistics that just 6% of eligible adults have opened a LISA, with just over 1.3 million accounts remaining active. The government designed LISAs so that only those under 40 were able to open them. They’re designed to encourage these young savers to save for their first home or retirement. Yet, as illustrated by the first-hand accounts of users shown in the video, every day people face obstacles that can sabotage their positive effects.
Daniel Slavin emphasized the need for change in LISA regulations: “The current government wants us to buy houses and increase growth, and I don’t think they should penalize us for doing the right thing and saving money.”
