According to quantitative research undertaken by HMRC and IFF, which was commissioned in January last year and gathered responses from 1,613 people, approximately 45% opened a LISA to save for retirement or later life.
LISAs have been under scrutiny, with the Treasury Select Committee launching an inquiry earlier this year into whether the LISA is an “appropriate financial product”. There was a suggestion to potentially split the LISA into two separate products.
The ISA regime in general is also in the spotlight, as rumours circulate about Chancellor Rachel Reeves potentially scrapping cash ISAs or revising the tax-free cash ISA allowance in the Autumn Budget, which is set for 26 November.
Only 7% said they opened a LISA for both of these reasons and 1% could not remember why they opened the account.
When asked about why they chose this particular savings product, 98% said the government bonus was important and 82% said the interest earned tax-free was important.
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Approximately 16% of those surveyed made a withdrawal from their LISA to buy their first home.
Nearly a third said the government bonus was essential in allowing them to get on the ladder, with half saying they would still have made the purchase without it but that it would have been with “some delay or difficulty”.
Almost a quarter said the government bonus was only a “nice-to-have” and that they could have bought their first home without it.
Around 87% of those who used a LISA to buy their home said it was likely that they would have saved and bought their first home if LISAs did not exist, with only one in 10 saying it was unlikely.
Only one in 10 LISA holders have made unauthorised withdrawals
Looking at unauthorised withdrawals, around 11% of LISA holders made an unauthorised withdrawal.
This covers 3% who made an unauthorised withdrawal to buy a property outside of the rules and 8% who did it for another reason.
An unauthorised withdrawal is when a LISA holder withdraws money for reasons other than to buy a first home for a purchase price of under £450,000, with a solicitor being used to buy it with a mortgage, for later life once the holders reach age 60 from April 2037, or if they have been diagnosed with a terminal illness.
The withdrawal charge is 25% of the total amount invested in the account, including any government bonuses, with some industry figures saying that the charge is too punitive.
The report stated that 89% who made such a withdrawal rated their understanding as ‘good’, with 46% saying it was ‘very good’.
A further 88% said they were aware of the high withdrawal charge of 25% when they applied and 86% said that prior to making the withdrawal, they were made aware of it.
HMRC said that those who made an unauthorised withdrawal for other reasons besides buying a non-eligible property were more likely to say they were “just about managing financially” compared to those who were yet to make a withdrawal, at 30% compared to 14%.
Most LISA holders between 30 and 47
The report found that 84% of LISA holders were aged between 30 and 47 at the time of the survey.
Within that, around 28% were aged 30-35, with 36-41-year-olds accounting for 30% and 42-47-year-olds making up 27%.
Approximately 62% were male and 36% were female, while 2% opted not to say.
From an ethnicity perspective, around eight in 10 LISA holders were white British, with 10% being Asian or Asian British. Some 4% were Black or Black British, while 3% were from mixed or multiple ethnic groups, and the same number preferred not to say.
Around three-quarters said they were working for an employer at the time of the survey, with 74% working full-time and 4% working part-time.
The majority of LISA holders lived in London or the South East, at 26% and 17% respectively.
LISA holders likely to be more financially stable and have more savings accounts
Examining the financial and savings profiles of LISA holders, 38% said they were managing ok financially at the time of the survey, with 37% saying they were living comfortably.
Only 15% said they were just about managing financially and 7% said they were finding it difficult to manage financially.
Looking at income profiles, 3% were earning up to £12,570, 34% were on £12,571-50,270, 37% earned around £50,271-125,140 and 11% earned £125,141 or more annually.
The report added that LISA holders held on average three other savings products at the time of the survey and only 2% reported that they had no other method of savings.
