Lifetime ISA withdrawals soar as people combat the cost of living crisis
More people are facing penalty charges for dipping into their Lifetime ISA savings.
The number of people drawing on their LISA property savings to afford day-to-day life has more than doubled in the past year, new data shows.
The Lifetime ISA (LISA) was introduced in April 2017 to help people between the ages of 18 and 40 save money either for the purchase of a home or their retirement.
People can invest up to £4,000 a year in a Lifetime ISA until age 50, and the Government will top-up savings by 25 percent each year, up to an annual maximum of £1,000.
There are three circumstances in which people can withdraw money from a Lifetime ISA without charge: to buy a home; if they’re aged 60 or over; or if they are terminally ill with less than 12 months to live.
If a person withdraws for any other reason, it is considered an unauthorised withdrawal, and they will incur a 25 percent penalty charge, effectively returning the Government top-up money.
Analysis by easyMoney shows that in the past year, the number of people utilising their Lifetime ISA to purchase a property has increased by 11.5 percent, rising from 50,300 withdrawals in 2021/22 to 56,100 in 2022/23.
Since the Lifetime ISA was introduced, UK house prices have increased by 28.4 percent. Despite rising living costs and high mortgage rates, prices remain near record highs, with the UK average currently at £280,660.
Consequently, Lifetime ISA withdrawals for house purchases have risen by 18.2 percent in the past year, totaling almost £779million annually. The average amount withdrawn each time has increased by six percent to £13,877.
However, the rising cost of living and uncertain economic future has also led to a rise in people opting for unauthorised withdrawals, suggesting that many are sacrificing their savings pot to pay for the day-to-day running of life.
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In the past year, the number of unauthorised withdrawals has increased by 56 percent to an annual total of 74,650.
Ths is up 53.1 percent to an annual total of almost £189million and, as such, the amount that people are paying in early withdrawal penalty charges has increased by 53.1 percent to just over £47million.
Jason Ferrando, CEO of easyMoney said: “The Lifetime ISA is all about planning for the future, giving people a tax-free way of saving money for a house purchase, or to fund the later years of life as a pension top-up. It was also a real show of generosity from the Government which pledged to boost annual savings by 25 percent.
“But the best-laid plans don’t always come to fruition, and the financial pressures that so many are currently facing mean that they no longer have the luxury of putting money away and leaving it there.
“Instead, they have to withdraw early, accept the penalty charge, and spend the savings on immediate issues that require money today, not tomorrow.”
Despite this trend, Mr Ferrando said: “The benefits of ISAs remain true and people are smart to take advantage of their tax-free allowance each year.
“But we always encourage people to look at all of the ISA options available to them because the most common ones, such as the Cash ISA and Lifetime ISA, aren’t always the best option.
“Based on ambitions and requirements, something like an Innovative Finance ISA could be your best bet because you’re looking at really strong rates of returns, and there’s no obligation to keep the money locked away for a long period of time.”
