Consumer champion Martin Lewis has urged people 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 founder of MoneySavingExpert (MSE) highlighted the benefits of opening an account in his latest weekly newsletter, following confirmation that Lifetime ISAs will eventually be replaced by a new First Time Buyer ISA.
Martin suggested even people who already own a property could 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."
Opening a Lifetime ISA with £1
A Lifetime ISA can currently be opened by anyone aged between 18 and 39, allowing them to save up to £4,000 each tax year and receive a 25 per cent UK Government bonus worth up to £1,000 annually.
The money can be used towards purchasing an eligible first home or withdrawn without penalty from the age of 60. People who already own a home cannot use the account to purchase another property, but they can still benefit from the bonus by saving towards 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 points out people considering buying their first home can benefit from opening an account early because it must have been open for at least 12 months before the savings and bonus can be used towards a qualifying property purchase. Opening an account with a small initial deposit could therefore give savers the option of making larger contributions later, provided they remain eligible.
Lifetime ISA rules for retirement
People who open a Lifetime ISA before turning 40 can continue paying into the account until their 50th birthday, even after the scheme closes to new applicants in 2029.
Each eligible contribution attracts a 25 per cent UK Government bonus, subject to the £4,000 annual contribution limit. For example, someone saving the maximum £4,000 in one tax year would receive an additional £1,000, taking their balance to £5,000 before any interest or investment growth.
Savers can choose between cash Lifetime ISAs and stocks and shares Lifetime ISAs, although investment values can fall as well as rise. Unlike a pension, money withdrawn from a Lifetime ISA after the age of 60 is generally tax-free.
However, there are important restrictions. People who withdraw their savings before turning 60 for reasons other than a qualifying first home purchase or terminal illness will normally face a 25 per cent withdrawal charge. This applies to the total amount withdrawn, including the UK Government bonus, meaning savers could receive less than they originally contributed.
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 designed specifically for people saving towards their first property, with no upper age limit for opening an account. Existing Lifetime ISA holders will be able to continue contributing under the current rules, including receiving the 25 per cent bonus until they reach 50.
The changes mean people who want to retain the option of using a Lifetime ISA for retirement will need to open one before the scheme closes to new applicants, while also meeting the current age requirements. Anyone considering opening an account should check whether the restrictions suit their circumstances, particularly if they may need access to their savings before turning 60.
Further information about eligibility, withdrawal rules and account options is available through the UK Government website.
