AJ Bell has called on the Government to strengthen the appeal of the lifetime ISA, after the Treasury Committee’s call for evidence on the savings product closed yesterday.

The investment platform has set out a series of reforms intended to enhance the appeal of the LISA, making its purpose “clearer” and the product "easier for consumers to understand and use".

Under current rules, investors can save up to £4,000 a year, with the Government providing a 25% bonus on top of this, with the money saved being used either for retirement or for purchasing a first-time property.

However, if this money is withdrawn from the LISA for any other reason, the Government bonus is removed and it also incurs a 6.25% encashment charge.

AJ Bell is urging the Government to end this early encashment charge, to remove the age-related restrictions which prevent over-40s opening an account, and raise the ceiling on the maximum purchase price limit when using a LISA to secure a first home with a mortgage, which is currently set at £450,000.

It added that these measures should be implemented "alongside broader reform" to ISAs to "radically simplify the system".

Head of public policy at AJ Bell, Rachel Vahey, said: "There is no doubt that the LISA has proved to be a bit of a marmite product. For prospective first-time buyers it can offer a massive leg-up onto the property ladder. It is impossible to imagine the government scrapping it altogether.

"Nonetheless, the flaws in its design mean the LISA doesn’t work effectively as a retirement savings product. And it has left some savers angry when they face a government-sanctioned punitive exit penalty if their plans change unexpectedly, and they need to take their money out earlier than planned.

"Almost 100,000 people made unauthorised withdrawals from LISAs in the tax year 2023/24, with an average value of £3,022. It is clear the early exit charge impacts a lot of people and that they’ve built up reasonable savings pots over a period of time.

"While most people are able to buy a first home under the current rules, there are some areas in the UK where the average flat or small house is off limits. Over time, this will inevitably extend out across the country until the LISA becomes useless for first-time buyers across the UK."

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