The Government has declined to reform the Lifetime Isa (Lisa), despite repeated warnings from the Treasury Committee that the product is flawed and risks disadvantaging savers.
In its latest report, the Committee argued that the Lisa does not effectively target people in genuine need of financial support.
It called for reforms to align Lisa savings with pension savings under the Universal Credit means test.
Without such changes, MPs recommended that Lisas be labelled as inferior products, with clear warnings that they may disadvantage anyone who could one day claim Universal Credit.
While the Government said it is open to considering warnings, it stopped short of committing to reforms.
It also pledged to work with providers to improve messaging around the product, but gave no detail on what this might involve.
The Committee has long expressed concern that the Lisa’s dual role — supporting both first-time homebuyers and retirement savers — risks confusing consumers and diverting them from more appropriate products.
MPs warned that this could put part of people’s savings at risk.
Dame Meg Hillier MP, chair of the Treasury Committee, said: “The Government has taken some steps towards improving the Lifetime Isa, but I do not believe they have gone far enough.
“The Lifetime Isa is a confused product that requires reform.”
She pointed to recent HMRC research showing that 87% of Lisa holders who used the product to buy their first home said they could have done so without it.
With Lisas forecast to cost the Government £3bn over the next five years, Hillier questioned whether this represented value for taxpayers.
She added: “The Government has an opportunity at the Budget to think again on the Lisa for would-be first-time buyers and those saving for retirement alike.”
