Launched in April 2017, the scheme is designed to encourage people aged between 18 and 39 to plan for their first home or retirement by contributing up to £4,000 a year into a savings account with a subsidised ‘bonus’ of 25% added for every year where payment is received up to age 50.
Savings can be withdrawn any time after the first year to use towards a property but cannot be accessed for any other reason until the age of 60 without incurring a steep 25% penalty.
Confusing and complex
However, despite the obvious attractions of such a scheme, the initiative has received widespread criticism since its introduction.
MPs on the Treasury select committee suggested the LISA’s “perverse incentives, complexity” and inconsistency “with the pensions saving landscape” had contributed to its “apparent lack of popularity”.
They said its attempt to combine short-term property savings and long-term retirement strategies had proven “confusing” to savers and could prevent many of them from contributing to their workplace pension schemes.
This was especially so given the existence of other, similar schemes such the Help to Buy ISA.
Little evidence of effect
The committee also concluded that the LISA’s emphasis on interest tax-relief offered “little evidence” of being an “effective way (to encourage) potentially vulnerable households to save”.
It added the LISA would do little to mitigate the “looming crisis” among the 12,000 million Britain’s not saving enough for retirement or the many self-employed people not covered by auto-enrolment.
Some commentators have argued the cut off age is too low, ruling out many self-employed workers over the age of 40, and that it is most likely to reward those with higher incomes or wealthy parents. Others have insisted that, even allowing for top rates of savings, required property deposits in this country are too high for the LISA to prove truly effective.
Nevertheless, with the government projecting up to 800,000 new investors by 2020/2021 and many other commentators praising its attempt to encourage younger people to save, regardless of the schemes limitations, it would be foolish to write off the LISA quite yet.
Despite this strong criticism, the government reiterated its support of the scheme, saying it was “in keeping with the government’s desire to offer people greater choice and freedom in how they save”.
Modifications may well be required, but it would take a brave person to suggest a similar model will not exist in the years to come.