Warning issued to anyone with 1 particular type of ISA

People with a Lifetime Individual Savings Account (LISA) have been warned by MPs that they may actually get less money than they put in. LISAs were launched in 2017 and allow anyone under 40 to save for their retirement or first home, but now there are calls for reforms. Up to £4,000 can be paid in every year and the Government will top it up by 25%.

However, if the money is withdrawn early, customers could lose £6.25% of their savings, the Treasury Committee warned. People on certain benefits may have also been mis-sold the savings account as it's not suitable for everyone, the committee added. Its report said LISAs make it "more likely" for people to "choose unsuitable investment strategies" as they are meant for both short- and long-term savings.

The report said: "Cash LISAs may suit those saving for a first home but may not achieve the best outcome for those using it as a retirement savings product, as they are unable to invest in higher risk but potentially higher return products such as bonds and equities."

In 2023-24, 56,900 people used their LISA to buy a home, compared with almost double, 99,650 people who made unauthorised withdrawals. The committee said this was evidence that the account does not work as intended.

Chair Dame Meg Hillier said: "We are still awaiting further data that may shed some light on who exactly the product is helping.

"What we already know, though, is that the Lifetime ISA needs to be reformed before it can genuinely be described as a market-leading savings product for both prospective homebuyers and those who want to start saving for their retirement at a young age."

Martin Lewis is also a critic of the LISA, saying its house price limit of £450,000 has left some buyers unable to find a suitable property below this figure.

He said: "Lifetime ISAs have worked well for many, but there is a growing hole that needs urgently addressing.

"No first-time buyer should be penalised for accessing their LISA savings to buy their first property – as that’s what the state, and the marketing, encourages them to do.

"If a LISA is used to buy a property above the threshold, there should be no fine; they should get back at least what they put in.

"And this flaw doesn’t just hurt those with LISAs. 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."