Investment platform, AJ Bell, is urging the government to scrap the age restrictions and exit penalty for the Lifetime ISA (LISA).

This comes in response to the Work & Pensions Committee ‘saving for later life’ inquiry in December, in which the Committee stated it would examine areas for improvement to help people plan for their retirement

AJ Bell has suggested that the LISA should be “supercharged” to make the product more attractive to self-employed savers. The investment platform believes that the combination of a 25% upfront bonus and tax-free access from the age of 60 would mean the LISA has the potential to be an “ideal retirement saving vehicle” for the UK’s self-employed workers.

According to AJ Bell head of retirement policy, Tom Selby, there is a “yawning chasm” between the average pension wealth of employed and self-employed workers, and he suggested this trend will be “exacerbated” by automatic enrolment.

“Failure to address this as a matter of urgency risks creating a pensions apartheid between those who are employed and benefit from auto-enrolment, and the millions who are self-employed and do not benefit,” Selby said.

“However, by preventing those aged 40 and over from opening a LISA and applying a 25% charge – effectively a 6.25% exit penalty – to withdrawals before age 60 that aren’t used for a first home, the government has severely limited its potential.

“Removing the age restrictions and reducing the early withdrawal charge from 25% to 20% – meaning it would simply be returning the upfront government bonus – would supercharge the LISA and vastly broaden its appeal, particularly to the self-employed.”

Selby also argued that both the government and regulators need to look beyond auto-enrolment for ways to engage people to save more for retirement themselves.

“A good starting point would be simplifying the tax rules governing pensions and committing to a period of stability, giving people certainty to plan for their future,” he added. “This would have the added benefit of making it easier for pension providers, advisers and others in the industry to explain the benefits of retirement saving.

“To facilitate greater engagement, the FCA should work with the industry to explore how providers could give greater guidance, help and support to people making financial decisions.”

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