From April 2028, the Government is expected to introduce a redesigned Lifetime ISA focused solely on helping first-time buyers, removing its existing role as a dual-purpose vehicle for both first-time buyers and those saving for retirement.
Maike Currie, VP for Personal Finance at PensionBee comments: “While the original design of the Lifetime ISA blurred the line between property and pension saving, something which should never have happened, the LISA has become an important retirement savings product for a growing cohort of savers.
“Many self-employed workers, who lack access to workplace pensions, have turned to LISAs to build long-term savings, making the most of the government bonus. Meanwhile homeowners in their 30s and early 40s, who managed to open a LISA before age 40, have continued contributing to LISAs, using them as a tax-efficient alternative or additional savings vehicle. Removing the retirement element without providing a clear plan for those who have used the LISA in this way, risks the LISA becoming a ‘zombie product’ and leaving these savers out in the cold.”
Under current rules, savers can contribute up to £4,000 a year and receive a 25% Government bonus, worth up to £1,000 annually. Funds can be withdrawn penalty-free to buy a first home worth up to £450,000 or after age 60 for retirement. Those who already own a home, could continue contributing to the LISA until the day before their 50th birthday. Any other withdrawal triggers a 25% charge, reclaiming the bonus and 6.25% of the saver’s own capital.
PensionBee is calling on ministers to clearly address what happens to existing retirement-focused LISA savers and to consider introducing an incentive to encourage them to move their funds into personal pensions - potentially through a one-off basic-rate tax bonus to replace the lost government top-up.
“Many ‘invisible workers’ including freelancers, the self-employed, carers and those in the gig economy may have relied on the LISA as means to save for retirement, as they fall outside traditional employment structures and have been left behind by the current pension system.
“While it sounds like the LISA will continue as it is for those savers, these changes do risk it becoming a ‘zombie’ or lost product. There needs to be clear transitional support and guidance for those that have counted on the LISA as a savings vehicle for retirement, and/or a supplement to their pension savings. Without this, the government risks once again undermining long-term saving and weakening retirement outcomes for a generation already facing rising living costs and uncertain pension provision.”
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