The government has said it will consult on Lifetime ISA reform with the view of creating a replacement ISA product for first time buyers. This is partly welcomed by the industry but raised serious concerns for current user and the self-employed.
Industry commentators said it was time the government conceded that the Lifetime ISA is a confused product in desperate need of simplification.
“As it currently stands, the Lifetime ISA has attempted to serve two distinct goals – saving for retirement and saving for a first home – but has failed to meet either effectively. While the 25% government bonus has been undeniably popular, the product itself has carried serious flaws and the withdrawal penalty has punished savers at a time when they have faced significant financial strain,” said Rachael Griffin, tax and financial planning expert at Quilter.
“What’s more, the house price cap of £450,000 has been unchanged since the product first launched in 2017 and has become increasingly detached from reality in many parts of the country. This has resulted in many people who have saved diligently, particularly those living in London and the South East, being unable to use their LISA for the property they need without facing a penalty. This has undermined confidence in the product and added complexity and must be addressed within the new product.
“As part of its consultation, the government should also look to reform the punitive 25% withdrawal penalty which often punishes savers for accessing their own money by taking back not only the government bonus, but some of their own savings too.”
However, she added, there would be questions marks over how and if existing LISA holders will be affected, and the government would need to ensure they are not disadvantaged
Sarah Coles, head of personal finance, Hargreaves Lansdown agreed and raised concerns over the effect of changes on self-employed individuals, “who fall seriously short when it comes to pension contributions”.
“The right consultation on its replacement is vital, and needs to ensure that dedicated savers and investors, who have been putting money away for their first property or for retirement aren’t disadvantaged by any change,” she said.
Helen Morrissey, head of retirement analysis, Hargreaves Lansdown pointed out that the LISA offered a useful way for the self-employed to save for retirement
“Today’s announcement on the Lifetime ISA will be worrying for those who rely on it for their retirement savings. The LISA has the ability to have a huge impact on the retirement prospects for groups such as the self-employed. This is a group that is not included in auto-enrolment and so miss out on an employer contributions. They may also find pensions lack the flexibility that they need given as money cannot be accessed until at least the age of 55.
“The bonus on the Lifetime ISA has the same effect as basic rate tax relief on a pension and any income can be taken tax free after the age 60. Added to this, money can be accessed early in case of emergency, albeit subject to an exit charge.
“It’s a product has the potential on the long-term resilience of this group. The consultation into a replacement must consider the needs of self-employed people saving for retirement. They are already under-saving, so it’s important not to put any more barriers in the way.”
While seeing the announcement as ‘hammering a nail into the Lifetime ISA’s coffin’, Dan Coatsworth, head of markets at AJ Bell, said it could “mean bringing back the Help to Buy ISA under a new guise.
“The government is keen to help more people get on the housing ladder and any financial incentives to support those hoping to achieve this dream will be welcome.
“It begs the question as to what will happen to existing Lifetime ISA customers. Those using the account for retirement savings will want to know if they’re stuck in a legacy account, or if they are able to transfer to a different account. Through this consultation process, the government needs to make sure consumers come first and that the number one priority is for existing Lifetime ISA customers to get a good outcome.
“It also presents a challenge for self-employed people who use it as a retirement savings vehicle. The self-employed miss out on auto-enrolment and so the government should be doing more to encourage those in this group to put away as much money as they can for later life.
“As it stands, the brief mention in the Budget documents about potential changes to the Lifetime ISA creates further uncertainty. The government wants to encourage more people to invest, and constantly changing the ISA system is unhelpful.”
See also:
Post Budget 2025 Insight – Expert Webinar 10 December 2025
Income tax thresholds frozen until 2031
Dividend tax hike flies in face of encouraging UK investment
Chancellor slashes cash ISA allowance in Budget
Chancellor confirms ‘mansion tax’ on properties over £2 million
Cut to salary sacrifice pension perk risks harming retirement outcomes
