Lifetime ISA withdrawal charges triple in lockdown

Lifetime ISA (LISA) early withdrawal charges have more than tripled in a year from £10m in 2019/20, to £33m in the 2020/21 tax year, according to data from Quilter.

A Freedom of Information request made by the wealth manager showed that over the previous three tax years, a total of £48m has been levied against LISA holders for early withdrawals.

In 2018/19 and 2019/20, the withdrawal charges were set at 25% before they were dropped to 20% from 6 March 2020 to 5 April 2021 to help people impacted by the pandemic to access funds. However, the 25% charge is now back in place.

Quilter said that the 25% withdrawal penalty is to disincentivize people from using a LISA for a purpose other than buying a first home or for retirement. The temporary reduction of withdrawal charges to 20% meant account holders would only have to pay back the 25% government bonus they received, meaning effectively there is no exit fee.

Given there were withdrawal charges of £33m in 2020/21, it implies that the total amount withdrawn from LISAs was around £165m, Quilter stated.

The most recent available government ISA statistics show that when LISAs were introduced in 2017/18, £486m was subscribed to the product and £604m in 2018/19.

“These stark figures illustrate how many people needed to raid their savings to cope with the financial strain brought on them by the pandemic,” Quilter financial planning expert, Rachael Griffin, said.

“Reducing the withdrawal charge to 20% and thus ensuring savers weren’t unfairly penalised during this difficult time was sensible. However, these figures also reveal that the LISA has some significant flaws in its design.

“The products are meant to be a hybrid between a retirement savings vehicle and an ISA product for first-time buyers. Unfortunately, while the product strives for the best of both worlds it falls short. LISAs are neither an ISA, with the flexibility to withdraw money at any time, or a pension, which has generous tax relief but requires savers to lock-up their money to at least age 55.

“They were a muddled idea to start with and the government should carefully consider their place in the long-term future of the UK’s savings system.”

    Share Story:

Recent Stories


FREE E-NEWS SIGN UP

Subscribe to our newsletter to receive breaking news and other industry announcements by email.

  Please tick here to confirm you are happy to receive third party promotions from carefully selected partners.


Helping the credit challenged get mortgage ready
A rising number of borrowers are finding it harder to access mortgages due to being credit challenged - whether that’s from historic debts, a county court judgment, or having little to no credit history.

In the latest episode of the Mortgage Insider podcast, Phil Spencer is joined by Eloise Hall, Head of National Accounts at Kensington Mortgages, and Alastair Douglas, CEO of TotallyMoney.

Air and the role of later-life lending
Content editor at MoneyAge, Dan McGrath, spoke to the chief executive officer at Air, Will Hale, about the later-life lending industry, the importance of tailored advice and how technology and obligations have shaped the sector.


Inside the world of high net worth lending
The mortgage market continues to evolve, and so too does the answer to the question: what is a high net worth individual in today’s market? In this episode of the Mortgage Insider podcast, host Phil Spencer is joined by Stephen Moroukian, Head of Product and Proposition for Real Estate Financing at Barclays Private Bank, and Islay Robinson, founder and CEO of Enness Global. Together, they explore what brokers really need to know when supporting high net worth individuals.

The future of the bridging industry and the Autumn Budget
MoneyAge content editor, Dan McGrath, is joined by head of marketing at Black & White Bridging, Matt Horton, to discuss the bridging industry, the impact of the Autumn Budget and what the future holds for the sector.