Should the lifetime ISA be replaced? Yahoo Finance readers have their say
In a report released on Monday, the Treasury select committee said that dual-purpose design of LISAs raises the risk of consumers choosing "unsuitable investment strategies".
People are able to use LISAs, which were introduced in 2017, to save for both a first home and retirement, using cash, stocks and shares or a combination of the two.
One issue raised in the report was the confusion over the 25% LISA withdrawal charge for funds drawn down early, whereby savers lose the government bonus they have received, plus 6.25% of their own contributions. MPs said that this means LISA holders "risk losing a significant part of their savings due to withdrawals to cover unforeseen circumstances".
Read more: The most popular stocks and funds investors bought in June
Another issued that was raised was the LISA property price cap of £450,000. If a consumer uses their LISA funds to buy a home above that price then they must pay the 25% withdrawal charge. That price cap has remained unchanged since the LISA's inception in 2017 but average house prices in the UK have risen more than 30% since then, with the average cost of a home in London hitting £564,000.
Rachael Griffin, tax and financial planning expert at Quilter, said: "This report should be the catalyst for serious reform. The lifetime ISA does not sit comfortably within the wider savings system and trying to make it serve two purposes has only added to the confusion.
"There is a clear opportunity to replace it with simpler, more targeted tools that give people the right support whether they are saving for a home or planning for later life. This should be a major focus of Labour's upcoming ISA simplification programme this summer."
There has been much speculation around how the government might look to change ISAs. The Financial Times reported on Monday that chancellor Rachel Reeves is expected to announce plans to reduce the annual tax-free savings allowance into cash ISAs in her Mansion House speech this month, as part of efforts to encourage more people to invest their money.
Earlier this week, we asked Yahoo Finance UK readers if they think that the LISA should be replaced. We received 79 votes, with 33% believing it should, while 54% disagreed and 13% were undecided on the matter.
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