The Treasury Committee’s latest report pulls no punches: the Lifetime Isa (Lisa) is not fit for purpose in its current form. In the evidence we submitted, we raised concerns about the product’s confused design and it’s welcome to see many of those points reflected in the final report.
It’s a timely report. The Treasury is preparing to consult on the future of Isas, and if there was ever a moment to take stock of how the system works, this is it. Among the many products that deserve closer scrutiny, the Lisa stands out as a clear candidate for reform.
The core problem is that the Lisa doesn’t know what it wants to be. It was meant to help both first-time buyers and retirement savers, but in trying to serve both, it ends up serving neither well. That lack of clarity leads to confusion among consumers and hesitation over how the product should be used.
Its name doesn’t help either. Including it under the Isa banner might have made sense at launch, but the proliferation of Isa variants now risks diluting the brand entirely. If the Lisa is going to be reformed, the Isa label should be dropped altogether. Simplicity should be the goal, not adding another layer of complexity.
A lack of clarity leads to confusion among consumers and hesitation over how the product should be used
There’s also the matter of the withdrawal penalty. Originally designed to discourage misuse, in practice it often penalises people for doing exactly what savings products are meant to support, which is drawing on funds in times of need.
If someone withdraws money for an ineligible reason, they lose the government bonus and pay a 25% charge on the total, effectively costing them more than they gained. During the pandemic, withdrawal rates surged as people relied on their Lisa savings to stay afloat, only to be hit with a charge for doing so.
The house price cap adds yet another layer of unnecessary restriction. Frozen at £450,000 since 2017, it fails to reflect today’s property market. In some cases, buyers lose out on a home simply because another bidder pushes the price just above the cap, knowing a Lisa holder won’t be able to follow without triggering a penalty. That’s not how a fair system should work.
It was pleasing that the Committee also backed our call to raise the Lisa age limit. At present, savers can only open a Lisa between the ages of 18 and 39, and can only contribute to it until they turn 50. With first-time buyers now well into their 30s, the current cut-off feels outdated and disconnected from reality. Updating the limit would be a small but meaningful step in making the product more useful.
Lisa ‘may be diverting people away from more suitable products’
But in truth, tweaks won’t be enough. Rather than patching over the cracks, government should consider splitting the Lisa in two: one product focused on supporting first-home purchases and another tailored to long-term savings, particularly for the self-employed. Neither should be called Isas.
Savers already face enough complexity. The upcoming Isa consultation is a real chance to create something better, simpler, clearer and more fit for how people live and save today. The Lisa should be at the centre of that conversation. Reform probably means abolition of the product as it stands today and a complete rethink.
There is both a need and a want for some of the features that the Lisa tries to provide. However, in trying to be the jack of all trades, the product is the master of none.
Rachael Griffin is a tax and financial planning expert at Quilter
