Government drops LISA exit charge for scheme’s first year

Tom Ellis writes

The government has decided to drop the 5% withdrawal penalty charge on the Lifetime ISA (LISA) for savers exiting the scheme in its first year.

The LISA will allow those aged between 18 and 40 to open an account and save up to £4,000 a year until age 50 and access the savings either to buy a first house or help fund their retirement.

Contributions into the savings scheme will receive a government bonus of 25%, however savers will lose their government bonues and incur a 5% exit charge if they access their LISA savings outside of the qualifying life events. The Treasury has predicted 800,000 savers will contribute to LISAs by 2020/21.

Tax Incentivised Savings Association (TISA) director general David Dalton-Brown (pictured) welcomed the news, arguing the penalty charge was “simply unfair”. He added: “It is great news for savers the government has decided to drop the 5% penalty charge for withdrawals within the first year of a LISA.

“Over recent months we have argued strongly the penalty charge was simply unfair – particularly where no government bonus would be payable. We believe the LISA is a good initiative and is a much needed incentive for those who currently find it hard to save or to consider doing so.

He added: “It also benefits the self-employed and low-paid who do not quality for auto enrolment scheme benefits and helps to encourage earlier engagement with retirement savings.”

In a consultation published in November, the Financial Conduct Authority warned behavioural biases were “likely to pose risks” to those who invest in the LISA, pointing to the saving scheme’s dual purpose of promoting house purchase and aiding retirement saving as the principal reasons.