The Lifetime ISA should be abolished states the Treasury Committee, following strong criticism of the scheme
Launched amid a fanfare in April 2017 and said to be offering a real boost to younger savers who are saving for a house or retirement, Lifetime ISAs have not taken off as hoped and even face the scrapheap following a recent Treasury Committee report.
Lifetime ISAs have struggled to make the impact that was hoped since launching in 2017, met by indifference by savers and providers alike. Following strong criticism of the scheme in some quarters, The Treasury Committee went further and called for the Lifetime ISA to be abolished due to its “perverse incentives and complexity”.
Now you could argue that this is a fairly strong way of putting it – particularly as, for some, the Lifetime ISA (LISA) does offer a genuine boost to their savings and a valuable incentive to save if used correctly.
But one of the biggest sticking points for many – and the factor that is likely to be making providers wary – is that people may use the LISA instead of saving into a workplace pension, potentially missing out on employer contributions and other benefits.
Providers are concerned that this could be a messy mis-selling issue waiting to happen and are put off dipping their toes in this market as a result.
So, there is very little choice and competition in the market, which means that savers may have struggled to see the point.
This is particularly evident when you are looking for a cash LISA, where just one account is available to open currently – from Skipton Building Society - and that is paying an uninspiring 0.75% tax free/AER, although it will be increasing to 1% with effect from 17th August, following the recent base rate rise.
The cash LISA market is set to double this summer thanks to Nottingham Building Society, though the interest rate will only match Skipton’s offering.
This lack of competition may then lead people towards investment LISAs – of which there are more available, but with investments often seen as more of a long-term option, is this suitable for those looking to buy their first home in the near future?
Lifetime ISAs allow savers to save for their first home or their retirement in one place – but critics would argue that these two goals are very different and so having one pot for them both is not necessarily the best way forward.
The Treasury Committee stated “This inquiry has received strong criticism of the LISA over its complexity, its perverse incentives, its lack of complementarity with the pensions saving landscape and its apparent lack of popularity with the industry and pension savers. The Government should abolish it.”
A pretty damning verdict but one which doesn’t acknowledge the positive aspects of the Lifetime ISA – after all it is not easy to find alternative ways of receiving a generous 25% bonus from the Government.
If used correctly, a Lifetime ISA can offer younger savers a boost, but with a lack of competition in the cash market and a real reluctance from providers to get involved, along with strong criticism of the scheme itself, there is the very real prospect of the LISA being consigned to history.
If you need any help with finding the accounts that are most suitable for your needs, please call us on 0800 011 9705 to speak to one of our expert savings specialists.
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