Savers are being warned that time is running out on one of Britain's most generous tax-free savings products. Consumer champion Which? has issued the alert, flagging that the popular Lifetime ISA (LISA) will no longer be open to new applicants from April 2028. The change, confirmed by HM Revenue & Customs, will see the LISA replaced with a new first-time buyer-only product, representing a significant shake-up in how Britons can save for both property and retirement.
Why the urgency?
The LISA, launched in 2017, allows savers aged 18 to 39 to set aside up to £4,000 a year and receive a 25% Government bonus worth up to £1,000 annually. But from April 2028: you won't be able to open a new LISA; existing accounts can continue under current rules; and a new, more limited product will take its place. This means anyone considering using a LISA for retirement must act before the deadline.
Soaring in popularity
The product has seen a dramatic rise in uptake, with account numbers nearly doubling from 706,000 in 2020-21 to 1.34 million in 2023-24, according to official figures. However, uncertainty remains over how many savers are using it specifically for retirement, after some official data was withdrawn due to accuracy concerns.
Is it worthwhile for retirement?
Experts at Which? suggest the answer isn't clear-cut. While the 25% bonus is appealing, workplace pensions frequently prove superior – particularly for employees receiving employer contributions. For instance, a worker earning £34,000 could see more than £2,200 annually paid into a pension through employer top-ups and tax relief. The equivalent personal contribution into a LISA would amount to roughly £1,388 including the bonus. This difference can make pensions the more robust choice for many.
Who should think about it?
A Lifetime ISA might still be suitable if you're self-employed and don't have employer pension contributions, you've reached pension allowance limits, or you want a tax-free fund in addition to your pension. However, there are drawbacks: withdraw money early (for anything besides a first home) and you'll face a 25% penalty. This can leave you with less than you initially put in.
There are increasing concerns that abolishing the LISA for retirement saving could impact freelancers most severely. Just one in five self-employed workers presently contributes to a pension, and industry experts caution the alterations could leave them with fewer avenues to build long-term savings.
