Nearly 100,000 Lifetime Isa savers hit with huge withdrawal costs

The total value of Lifetime Isa withdrawal charges rose to £75.2 million in 2023-24 — nearly 40 per cent higher than the previous year when they totalled £54.3 million.
Some finance experts said the figures from HM Revenue & Customs highlighted the need to reform Lisas, which help people to save for their first home or their retirement.
Withdrawing cash for any other reason, unless someone is terminally ill, can trigger a penalty. The total value of withdrawal charges in 2023-24 was £75,272,000, up from £54,328,000 in 2022-23.
Some 56,900 people used their Lisa to buy their first home in 2023-24, and under Lisa rules the home must cost £450,000 or less. But 99,650 people made unauthorised withdrawals during the same period.
Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, the investment platform, said: “The Lifetime Isa is proving hugely useful, with almost 57,000 people using one to help them get that all-important first step on the housing ladder in 2023-24.
“However, there’s massive room for improvement, as around 100,000 people made an unauthorised withdrawal from their Lisa during the same period and got clobbered with a withdrawal penalty.”
She added: “It’s clear the Lisa has huge potential to help people meet their home-owning and retirement needs but reform is needed.
“The 25 per cent government top-up on savings of up to £4,000 per year is a huge incentive to help people save, but the corresponding 25 per cent exit penalty not only takes away this bonus but also a chunk of your hard-earned savings.
“This not only acts as a disincentive for those saving for their first home but also those who want to use it to save for their retirement. This is particularly the case for groups such as the self-employed with variable earning patterns who may prefer the flexibility of the Lisa over a pension.
The latest HMRC figures show that Isas have surged in popularity in the higher interest rate environment. About 12.5 million adult Isa accounts were subscribed to in 2022-23, up from 11.8 million in 2021-22.
The number of cash Isas increased by 722,000, while the the number subscribing to stocks and shares Isas fell by about 126,000. Some 1.25 million Junior Isa accounts were subscribed to in 2022-23, up from 1.21 million in 2021-22.
According to the financial information website Moneyfactscompare.co.uk, the average easy-access cash Isa paid 0.26 per cent interest in December 2021 but by September 2022 it was 0.92 per cent; in September 2023 the average was 3.04 per cent and this month it is 3.29 per cent.
Savings rates rose as the Bank of England base rate increased. The base rate was recently cut by 0.25 percentage points and on Thursday the Bank held the rate at 5 per cent.