The government should scrap the exit charge and age restrictions on Lifetime Individual Savings Accounts (ISAs), Tom Selby, senior analyst at investment firm AJ Bell has argued.
Many use the Lifetime ISA to save for their first home. Currently you have to be 18 or over or under 40 to open the account and until you’re 50 you can put £4,000 in each year.
Selby said: “With the Help to Buy ISA due to be abolished in November this year it is likely the big banks and building societies will enter the fray.
“While the LISA now has a firm foundation in the UK savings landscape, the 25% government-imposed exit penalty for early withdrawals is unnecessarily harsh and could leave investors with less than they originally contributed.
“Reducing this charge to 20% of the amount withdrawn – in effect returning the government bonus – would be fairer and make explaining LISA’s benefits more straightforward.
“There are now around five million self-employed people in the UK, the majority of whom have little to no retirement savings at all. Creating attractive options for this growing section of the workforce is essential if we are to avoid huge problems further down the line.
“Lowering the exit charge and scrapping the age restrictions would supercharge the LISA for future investors.”
Despite the restrictions in place on those who invest and the relatively low number of providers who have come to market to-date, almost 300,000 accounts have been opened since April 2017.
Selby added: “The Lifetime ISA has been that rare thing in financial services: a useful, popular new product.
“When you combine the amount invested with the government bonuses added, we reckon almost £2bn has now been invested through LISAs, providing a rocket boost for first-time buyers and a useful top-up to traditional pension savings too.”