It has been reported in the Financial Press that The Treasury Committee has called upon the government to abolish the Lifetime ISA (LISA) just 16 months after it was first made available, after receiving persistently negative feedback on the product.
In its latest report, Household finances: income, saving and debt, the Treasury Committee recommended the government abolish the savings product.
Published on Wednesday, the report said: “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.”
Former pensions minister Ros Altmann was a witness to the inquiry. She said: “I would urge the Committee to recommend abolishing the LISA; just scrap it. It is, in my view – and I have seen this for so many decades – another mis-selling scandal waiting to happen.”
The LISA allows those aged between 18 and 50 to save up to £4,000 a year towards a pension or a first home tax free, with the promise of a 25% government bonus capped at £1,000 a year. However, withdrawal for any other purpose will trigger a 25% exit penalty levied by the government.
The Committee said the 25% bonus and 25% withdrawal charge system is problematic, as many savers don’t realise the withdrawal charge applies to the entire investment, and as such, will lose more than the government bonus should they choose to withdraw money early.
The LISA was announced in the 2016 Budget, but the take up among providers has been low it is reported