According to the latest annual savings statistics from HMRC, the total value of unauthorised withdrawals came to £408m during the period, a rise from £301m in the prior year.
The number of individuals making unauthorised withdrawals stood at 129,200, an increase from 99,700 in the previous year.
The average value of an unauthorised withdrawal was estimated at £3,159, which compares to £3,022 in 2023/24.
The LISA can be used to buy a first home or to save for later life, and borrowers can put in up to £4,000 each year until the age of 50. The government then adds a 25% bonus up to a maximum of £1,000 per year.
A withdrawal charge of 25% is applied if a borrower uses it for a purpose other than buying a first home, they are aged over 60 or they are terminally ill with fewer than 12 months to live. It can also apply if a property costs over £450,000.
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The Treasury Select Committee launched an inquiry into LISAs earlier this year, with many contributors saying the withdrawal charge needed to be reformed.
In its response, the government said the property price cap and withdrawal charge ensure that the LISA is being used for its intended purpose.
Looking at the number of withdrawals for a house purchase, this jumped to 87,250 from 56,750.
The total value of house purchase withdrawals came to around £1.4bn, a rise from £846m in the prior year.
The average value of a withdrawal for a house purchase came to 15,782, an increase from 14,525 in 2023-24.
LISA is ‘ripe for reform’
Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, said the LISA played an “enormously important role in helping people to save for their first home or retirement”, but the latest data on withdrawal charges shows the product is “ripe for reform”.
She continued: “The 25% government bonus for LISA contributions can really boost people’s savings and help that dream of owning your first home or having a decent retirement feel that bit more real. However, the way the early exit penalty works is that it not only takes away the benefit of the government bonus but also a chunk of your own savings. For someone who has saved hard to try and meet a financial goal, it’s a tough lesson to take when they need to tap into that income for unforeseen circumstances and then get hit hard with a penalty.
“Hargreaves Lansdown has long campaigned for the early exit charge to be reduced from 25% to 20% to mitigate this issue and give people the confidence to save for their future. Such a change could also have a transformative effect on the long-term financial resilience of groups like the self-employed, who fall behind when it comes to pension saving. Many don’t like the idea of saving into a pension that they can’t access until at least the age of 55.”
Morrissey noted that the ability to access a LISA “in times of need would be extremely attractive and the 25% bonus has the same effect as basic-rate tax relief on a pension”.
“Making changes such as reducing the penalty alongside allowing older people to open a LISA could have a huge impact on this group’s long-term resilience, with recent data from Hargreaves Lansdown’s Savings and Resilience Barometer estimating around 1.2 million self-employed households could benefit,” she noted.
