Nearly 100,000 people ‘clobbered’ for unauthorised Lifetime Isa withdrawals

The total value of Lifetime Isa (Lisa) withdrawal charges hit just over £75.2 million in 2023-24 – nearly 40% higher than the previous year when they totalled £54.3 million.

Some finance experts said the figures from HM Revenue and Customs (HMRC) highlight the need to reform Lisas, which help people to save for their first home or their retirement.

Withdrawing cash for any other reason, unless someone is terminally ill, can trigger a penalty.

The total value of withdrawal charges in 2023-24 was £75,272,000, up from £54,328,000 in 2022-23.

Some 56,900 people used their Lisa to buy their first home in 2023-24, and under Lisa rules the home must cost £450,000 or less.

But 99,650 people made unauthorised withdrawals during the same period.

Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, said: “The Lifetime Isa is proving hugely useful with almost 57,000 people using one to help them get that all-important first step on the housing ladder in 2023/24.

“However, there’s massive room for improvement as around 100,000 people made an unauthorised withdrawal from their Lisa during the same period and got clobbered with a withdrawal penalty.”

She continued: “It’s clear the Lisa has huge potential to help people meet their home owning and retirement needs but reform is needed.

“The 25% Government top-up on savings of up to £4,000 per year is a huge incentive to help people save, but the corresponding 25% exit penalty not only takes away this bonus but also a chunk of your hard-earned savings.

“This not only acts as a disincentive for those saving for their first home but also those who want to use it to save for their retirement.

“This is particularly the case for groups such as the self-employed with variable earning patterns who may prefer the flexibility of the Lisa over a pension.

“Reducing the exit penalty from 25% to 20% would ensure that only the effect of the Government bonus is removed rather than your own money and encourage more people to use a Lisa for retirement safe in the knowledge that they won’t lose any of their own money should they need to access it early in a time of need.”

Ms Morrissey continued: “Lisas are building in popularity – the data shows a record £2.4 billion was paid into Lisas in 2022-23.

“Further changes could also mean more people opt for a Lisa in the future.

“As it currently stands, you can only open a Lisa if you are aged between 18-39. Allowing people to open and contribute to a Lisa up until the age of 55 would open this product up to even more people.

“Again, these are changes that would particularly benefit the self-employed, who may opt to start working for themselves later in life.”