MPs urge further reform of Lifetime ISA as Treasury committee questions value for taxpayers

Ministers must go further in reforming the Lifetime Individual Savings Account (LISA), a Treasury Committee report concluded, warning the product is being mis-sold and may not represent good value for taxpayers.

The committee told ministers its June findings had not been fully addressed and highlighted concerns that the LISA’s dual purpose — to help first-time homebuyers and to support long-term retirement saving — increases the likelihood savers adopt unsuitable investment strategies. The scheme is forecast to cost the government about £3 billion over the next five years, raising questions about its effectiveness and reach ahead of the November Budget.

Dame Meg Hillier, who chairs the Treasury Committee, said the government had taken some steps but “has not gone far enough.” She described the LISA as “a confused product that requires reform.” Since the LISA’s launch in 2017, about 6% of eligible adults have opened an account, with roughly 1.3 million accounts still active, according to the committee’s report and the most recent official figures.

Under current rules, anyone aged under 40 can open a LISA and contribute up to £4,000 a year, with the government adding a 25% bonus on contributions. The Treasury Committee cited HM Revenue and Customs research based on a sample of LISA holders that found 87% of those who used the account to buy their first home said they could have done so without the LISA, a statistic the committee said should prompt scrutiny of whether the account is the most effective use of public funds.

The committee also criticised disparities in how LISA savings are treated for means-tested benefits. Savings held in a LISA can affect entitlement to universal credit and housing benefit, whereas amounts in other personal or workplace pension schemes do not. The committee called those rules “nonsensical” and said that unless the government changes the treatment of LISAs in benefit calculations the product should be clearly labelled as an inferior option for people who may be eligible for such support.

In its formal response, the government said it kept all aspects of LISA policy under review and had begun work with industry and other departments to improve messaging about how savings and investments can affect benefit entitlement. It accepted some of the committee’s concerns but did not commit to the specific changes MPs requested, prompting the committee to press ministers for further action ahead of the Budget.

The committee’s June report recommended clearer labelling, better consumer protections to reduce mis-selling, and changes to how LISAs interact with the benefits system. It cautioned that the account’s dual short- and long-term objectives could lead consumers to adopt investment choices that are inappropriate for their needs and could increase the chances of avoidable tax and benefit losses.

Launched under the former Conservative government, LISAs were designed to help younger adults save for retirement or accumulate a deposit for a first home. The committee’s intervention underlines tensions between that aim and the product’s take-up and cost profile, and places additional scrutiny on whether continuing the scheme in its present form is a prudent use of public resources.

As ministers prepare fiscal plans for November, the Treasury Committee’s report adds pressure for policy makers to set out clearer protections, consider changes to benefit-treatment rules, or rethink the structure or targeting of the LISA. Ministers have acknowledged the issues but have so far signalled only incremental steps, leaving MPs to call for more decisive reform.