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Nearly 300,000 savers sign up for Lifetime ISAs despite strict rules

Joanna Faith
Written By:
Joanna Faith

Nearly 300,000 people have opened a Lifetime ISA (LISA) since the product launched two years ago.

A Freedom of Information request by AJ Bell shows 286,000 cash and investment LISAs have been set up since they were launched in April 2017.

AJ Bell says LISAs has proved popular despite the restrictions on who can invest and the relatively low number of providers offering them.

Only people aged 18-39 can open a LISA and just ten providers offer them at the moment (see full list below), though with the Help to Buy ISA due to end to new savers in November this year, more banks and building societies could enter the fray.

AJ Bell calculates that more than £1.4bn has been saved in LISAs, based on the average subscription in 2017/18, which was £3,114.

When the government bonus is included, the figure jumps to £1.8bn.

Despite their popularity, AJ Bell says the government could “supercharge the LISA” by making it available to savers of all ages and slashing the unfair exit penalty.

LISAs aim to help people buy their first home or save for retirement so savers have to pay a 25 per cent exit fee if they want to access their money before age 60 for any other reason than purchasing a property.

“While the LISA now has a firm foundation in the UK savings landscape, the 25 per cent government-imposed exit penalty for early withdrawals is unnecessarily harsh and could leave investors with less than they originally contributed,” said Tom Selby, senior analyst at AJ Bell.

“Reducing this charge to 20% of the amount withdrawn – in effect returning the Government bonus – would be fairer and make explaining LISA’s benefits more straightforward.”

He added that the government should revisit the current age restrictions as part of its drive to solve the self-employed savings crisis.

“There are now around 5 million self-employed people in the UK, the majority of whom have little to no retirement savings at all. Creating attractive options for this growing section of the workforce is essential if we are to avoid huge problems further down the line.”

How the LISA works

With a LISA, you can save or invest up to £4,000 every year and the government adds a 25 per cent bonus.

The money is meant to go towards your first home or retirement, so there’s a 25 per cent withdrawal penalty if you take your money out before you’re 60 and it’s not for your first home (see above).

You can only open a LISA if you are 18 or over and under 40.

As with all ISAs, any interest or income you earn is tax-free.

You can open an investment LISA with the following providers: AJ Bell, Hargreaves Lansdown, The Share Centre, Foresters Friendly Society, Nutmeg, Moneybox and One Family.

Three building societies offer cash LISAs: Newcastle, Nottingham and Skipton, as well as Unity Mutual.