MPs Call for Overhaul of Lifetime ISA (LISA)

A major parliamentary report has called into question whether the Lifetime ISA (LISA) is truly fit for purpose—warning that its design may be confusing savers, disadvantaging lower-income individuals, and costing the government billions without clear evidence of value.

Published today (30 June), the Treasury Select Committee’s report highlights serious concerns with the LISA’s dual-purpose aim: helping under-40s save either for retirement or to buy their first home. While the government bonus of 25%—up to £1,000 a year—has attracted 1.3 million account holders, MPs argue the product may be steering some users towards poor financial decisions.

Cash or Stocks? Two Goals, One Confused Strategy

The report suggests that trying to combine short-term and long-term goals in a single product risks leading savers down the wrong path. For example, someone using a LISA to buy a home might favour cash savings, while those using it for retirement would benefit more from long-term investments like bonds or equities. The confusion may result in inappropriate investment strategies, the committee warns.

Penalties and Misaligned Incentives

One of the most damning criticisms centres on the 25% withdrawal charge, which applies when money is taken out for anything other than a first home or retirement after age 60. This isn’t just the loss of the bonus—it actually reduces the saver’s own contributions, leaving them with less than they put in. The report points to a sharp increase in these “unauthorised” withdrawals: nearly 100,000 in the last financial year, compared with only 57,000 home purchases.

“This surge suggests many people may be using LISAs as a general savings product—despite the hefty penalties—which is a strong signal the product isn’t working as intended,” the Committee concludes.

An Unfair Deal for Benefit Claimants

The Committee also criticises how LISA savings affect benefit eligibility, noting that they count against people claiming Universal Credit or Housing Benefit, unlike workplace pensions. This inconsistency has led MPs to describe the rule as “nonsensical” and potentially damaging for low-income savers, who may not realise their LISA could disqualify them from financial support.

The report suggests LISAs may have been mis-sold to people unaware of these implications and warns that, unless the rules change, the product should carry a clear warning for anyone who might claim benefits at any point in their life.

Who Is Really Benefiting?

With the Treasury forecast to spend £3 billion on LISA bonuses by 2030, MPs are questioning whether this is the best use of public money. The report expresses concern that the scheme could be disproportionately benefiting higher earners using the LISA as a government-backed boost to their first property purchase, rather than reaching those with real financial need.

The Committee is urging the government to publish better data showing who is using LISAs, by income group and savings purpose.

Room for Improvement

Despite the criticisms, MPs do acknowledge the LISA has some merits—especially as a retirement option for the self-employed and those who value the product’s homebuyer cap, which limits support to homes under a certain price. They also support having a disincentive to early withdrawals, though question the fairness of the current penalty structure.

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