The government has rejected recommendations from the Treasury Select Committee to abolish Lifetime Isas.
In a report published in July, the committee said written evidence from UK Finance found the Lifetime Isa wasn’t working due to its “perverse incentives and complexity” as well as its “apparent lack of popularity”.
It also said that in promoting the Lifetime Isa to retail investors, the government has not been clear enough that those withdrawing their money early lose not only the 25 per cent bonus, but also a fraction of their capital.
The government acknowledged the select committee’s view, but noted that no evidence was taken from any of the 19 providers of Lifetime Isa. It also noted that more than 190,000 accounts have been opened and more than £170m has been paid out in bonuses. It says these numbers – which it reckons will increase – demonstrate that people welcome the flexibility of the Lifetime Isa.
The government said it “remains committed to supporting savers of all income levels and at all stages of life for a range of aims, such as saving towards the purchase of a first home, for a rainy day, or for retirement”.
It added that it has worked closely with the Financial Conduct Authority and Lifetime Isa providers to ensure savers were aware of the implications of making a chargeable withdrawal.
Skipton building society head of products Kris Brewster (pictured) says: “We welcome the government’s commitment to the Lifetime Isa product. There is clear evidence that the Lifetime Isa helps to answer the needs of a new generation of savers, supporting property ownership and preparation for life ahead. Over 120,000 of our members are already using the product to boost their savings, with over nine out of 10 looking to buy their first home.”
OneFamily managing director of Lifetime Isas Nici Audhlam-Gardiner says: “It is very good to see the government once again reiterating its long-term support for the Lifetime Isa. The Isa is proving increasingly popular with consumers saving for a first home or retirement as awareness grows. It offers savers excellent benefits, which are unique to this product.
“The Lifetime Isa has already paid out more in bonuses than its inferior predecessor the Help to Buy Isa and we know from our customers that they are delighted with the monthly top up from the government bonus and the prospect of the long-term growth of their investments.”
Lifetime Isas were introduced in April 2017. The accounts enable people under 40 to contribute up to £4,000 a year with the government topping up savings by £1 for every £4 saved, up to the age of 50. Funds can be used to buy a first home or to fund retirement.