In response to the Treasury Select Committee inquiry, Emma Reynolds, Economic Secretary to the Treasury, said the government “recognises the importance of the LISA in supporting people to achieve the aspiration of homeownership, or to build up savings for later life”.
She added that it had “carefully considered important issues highlighted by the committee in its report and we will consider the recommendation in future development of the policy”.
“The government is committed to supporting people at all income levels and all stages of life to save,” it said.
The recommendations made by the Treasury Select Committee earlier this year include:
- The moment at which people purchase their first property offers a singular opportunity for the government and/or LISA providers to explain the merits of the LISA as a retirement savings vehicle.
- The Treasury must use income distribution impact assessments to assess whether the LISA effectively targets people who need financial support. If the LISA does not achieve that objective, the Treasury should consider whether the LISA has a future in its present form.
- If the government wants to encourage long-term saving for retirement through LISAs, it must treat the savings in a LISA in the same way as other pension savings products as part of the Universal Credit means test.
- If the government is unwilling to equalise the treatment of the LISA with other government-subsidised retirement savings products in Universal Credit assessments, LISA products must include warnings that the LISA is an inferior product for anyone who might one day be in receipt of Universal Credit. Such warnings would guard against savers being sold products that are not in their best financial interests, which might well constitute mis-selling.
Regarding the recommendation around encouraging the use of LISAs post-purchase as a retirement option, the government said it was “committed to making ISAs, including LISAs, as simple and flexible as possible”.
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It said there is “no requirement” for LISA users to close an account post-house purchase, but some individuals might prefer to open a different account to “explore different rates and investment options”.
The government said there is no direct contact or interaction with individuals, but it would “work with industry to consider ways in which it could improve its messaging”.
Looking at the recommendation around income distribution assessments to ensure that it was targeting people in need of financial support, and if it didn’t fill this purpose, reconsidering its future, the government said the property price cap and withdrawal charge ensure it is being used for its intended purpose.
It added that it collected comprehensive data on LISAs that would inform its policy decision-making and it “keeps all aspects of the LISA policy under review and carefully considers all representations received”.
On the recommendation to treat LISAs as pension savings deals as part of the Universal Credit means test, the government said the LISA was a savings product and it counted towards that calculation, but it was the realisable value, not the amount held.
The government said the Universal Credit limit of £16,000 would ensure that “help [that] comes from taxpayers, many of whom have limited capital, is directed to families who need it most”.
“Universal Credit is there to support people who do not have sufficient resources available to meet their basic needs. While it is important to protect the incentive to save for customers on low earnings, people with substantial capital should take responsibility for their own day-to-day support,” it added.
On the final recommendation about providing warnings around the LISA as an “inferior product” for anyone who could be in receipt of Universal Credit, the government said it would consider this in the “future development of the policy”.
“We will work with industry and other government departments to consider ways to improve the messaging about [how] the implications of savings and investments might affect entitlement to Universal Credit,” it said.
LISA is ‘delivering on its original purpose’ but ‘full potential’ yet to be realised
Brian Byrnes, head of personal finance at Moneybox, said “without a doubt, the LISA is delivering on its original purpose – helping young people save and invest earlier in life towards their first home and retirement”.
“We also believe its full potential is yet to be realised. With a few simple updates to the product rules, which have not [been] reviewed since its launch in 2017, many more young people could benefit in the years ahead.
“HMRC’s own research recently found that 42% of those not currently holding a LISA would be most likely to open one if the rules were changed so that original savings were not lost when paying the withdrawal charge, and we also believe there is a strong case for committing to an annual review of the property price cap to ensure it keeps pace with changing market conditions,” he explained.
Byrnes said the firm had seen first-hand how “invaluable” the product had been in assisting people in saving.
“Nearly a quarter of a million first homes have already been purchased with the help of a LISA, and the latest HMRC data shows that 1.3 million people are currently saving or investing through one. We remain committed to working closely with the government to champion the needs of aspiring first-time buyers and younger generations nationwide,” he noted.
Carol Knight, CEO of The Investment and Savings Alliance (TISA), said it welcomed the “recognition of the important role LISAs have as part of the ISA landscape”.
“Whilst we share some of the concerns outlined in the Treasury Committee’s report, we believe the LISA is a positive tool, encouraging thousands of young people to save for their first home and providing a useful retirement option, especially for the self-employed.
“As highlighted in the committee’s report, there are several areas where the LISA could be improved upon and we look forward to working with industry and the government to shape the LISA into a product [that] supports the financial wellbeing of all consumers, regardless of where they are in their financial journey,” she added.
