Consumer champion Martin Lewis has urged anyone under the age of 40 to consider opening a Lifetime ISA (LISA) with as little as £1 before the savings scheme closes to new applicants in April 2029.
The MoneySavingExpert (MSE) founder highlighted the advantages of opening an account in his most recent weekly newsletter, following confirmation that Lifetime ISAs will eventually be replaced by a new First Time Buyer ISA.
Why open a LISA now?
Martin suggested that even those who already own a property could stand to benefit from opening a Lifetime ISA before the scheme closes to new customers, as the account can also be used to save for retirement. In the newsletter, Martin said: "ALL under-39s, even those who own a home, should have £1+ in a LISA."
The guidance comes as the UK Government prepares to launch a replacement savings scheme for first-time buyers from April 6 2029, while existing Lifetime ISA holders will be permitted to continue using their accounts.
How a Lifetime ISA works
A Lifetime ISA can currently be opened by anyone aged between 18 and 39, enabling them to save up to £4,000 each tax year and receive a 25% UK Government bonus worth as much as £1,000 annually.
The funds can be put towards purchasing an eligible first home or withdrawn without penalty from the age of 60. Those who already own a home cannot use the account to buy another property, but can still take advantage of the bonus by putting money aside for retirement.
MSE's updated Lifetime ISA guidance states: "If you're under 40 and you might want to use a LISA for retirement one day, it can be worth opening one with as little as £1 just to get the clock ticking now."
The guidance also highlights that those considering purchasing their first home could benefit from opening an account sooner rather than later, as it must have been active for a minimum of 12 months before the savings and bonus can be put towards a qualifying property purchase.
Retirement rules and withdrawal charges
Those who open a Lifetime ISA before their 40th birthday can carry on paying into the account right up until they turn 50, even after the scheme closes to new applicants in 2029.
Every eligible contribution qualifies for a 25% UK Government bonus, subject to the £4,000 annual contribution limit. For instance, someone depositing the maximum £4,000 in a single tax year would receive an additional £1,000, bringing their total balance to £5,000 before any interest or investment growth is taken into account.
Savers have the choice between cash Lifetime ISAs and stocks and shares Lifetime ISAs, though it is worth noting that investment values can fall as well as rise. Unlike a pension, funds withdrawn from a Lifetime ISA after the age of 60 are generally tax-free.
However, savers who withdraw funds before the age of 60 for reasons other than a qualifying first home purchase or terminal illness will typically face a 25% withdrawal charge. This applies to the entire amount withdrawn, including the UK Government bonus, which means savers could end up receiving less than they originally put in.
Changes coming in April 2029
The UK Government has confirmed the Lifetime ISA scheme will close to new applicants when the First Time Buyer ISA launches on April 6, 2029. The replacement account will be tailored specifically for those saving towards their first property, with no upper age limit for opening an account.
Existing Lifetime ISA holders will be able to carry on contributing under the current rules, including receiving the 25% until they reach 50. The changes mean that anyone wishing to retain the option of using a Lifetime ISA for retirement savings will need to open one before the scheme closes to new applicants, while also meeting the existing age requirements.
Anyone thinking about opening an account should carefully consider whether the restrictions are suited to their personal circumstances, particularly if they may require access to their savings before reaching the age of 60. Further details regarding eligibility, withdrawal rules and account options can be found on the UK Government website.
