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A lifelong personal savings account increases the risk that people will make poor financial decisions, according to a report by an influential committee of UK lawmakers that questioned whether tax-free savings products subsidize buyers in wealthy first households at taxpayer costs.
The House Treasury Select Committee questioned the “duplex purpose” of the lifelong ISA, saying it would “complexize products and increase the risk that consumers will choose inappropriate investment strategies.”
The report, released Monday, believes the government is considering sweeping market reforms as part of a broader plan to encourage more people to invest in stocks and bonds.
Dame Meg Hillier, chairman of the Treasury Commission, supports the lifelong ISA objectives to help save savings for early home buyers and retirement, but said he questioned whether it was “the best way to spend billions of pounds over several years” to achieve those goals.
“We know that the government is urgently watching ISA reforms, and this is the best time to assess whether this is the best way to help those in need,” Hillier said in a statement Monday.
George Osborne introduced a Lifetime Personal Savings Account (LISA) as Prime Minister in 2016. This will allow people aged 18-40 to save £4,000 each tax year with a 25% bonus from the government until they reach the age of 50.
When you turn 60, or if your saver is terminally ill, you can withdraw tax-free to buy your first home for under £450,000.
Data from HM Revenue & Customs shows that Lisas is popular with aspiring home buyers. 56,900 people used it to purchase their first property in 2023-24.
In April 2024, almost 1.4 million LISA accounts were opened. However, some industry experts have been criticized for being unfair, complicated and not adjusting in line with rising home prices.
Although this product has remained relatively unchanged for eight years since its introduction, only one in seven ISA providers have chosen to offer it to consumers. Charlinun, CEO of Lloyd’s Banking Group, is reluctant to see banks deliver the complexity primarily.
“We are very concerned about it in terms of complexity and behavior,” he told the Finance Committee. “Secondly, if you want to save money for retirement, there are other better options.”
The report explains buying a home and saving for retirement as a “contrassing goal,” and states that investments in various periods of time could increase consumer risk, as long-term investors, such as retirees, are more likely to benefit from risk and return investments such as stocks.
“This raises concerns that people may not be optimizing their retirement savings, leaving them with smaller pots in the future,” he said.
The report was also important for the 25% claims imposed on so-called fraudulent withdrawals. That is, savers lose 6.25% of their government bonuses and their money, and lose their inclusion when determining universal credit eligibility.
The 2023-24 tax year saw roughly 100,000 fines, costing the saver more than £755 million.
The MP wrote that it was “meaningless” to treat one pension product in a different way than another, and recommended that the government should equalize it or tell people that the lifelong ISA is a “lower product” for those who may assert universal credit.
“This kind of warning protects products on sale that are not in their best financial interests.
