In 2023-24, the total withdrawal charges for Lifetime Isa will be worth £75.2 million — a nearly 40% increase from last year’s total of £54.3 million . Finance experts say that the figures released by HM Revenue & Customs highlight the need for reforming Lisas which helps people save up for their first house or retirement.
If you withdraw cash for another reason than terminal illness, you may be charged a fee. In 2023-24, the total amount of withdrawal charges was £75.272,000. This is up from £54.328,000 in 2022/23.
Lisa’s rules require that the first home purchased by Lisa customers must be priced at less than £450,000. But 99.650 people also made unauthorised withdrawals in the same time period.
Helen Morrissey is the head of retirement analyses at Hargreaves Lansdown. She said that the Lifetime Isa has been a great help to many people, as almost 57,000 have used one in order to get their first step onto the housing ladder by 2023-24.
There is still a lot of room for improvement. Around 100,000 people unauthorisedly withdrawn money from their Lisa in the same time period, and were hit with hefty withdrawal penalties. She said: “It is clear that the Lisa can help people achieve their home-owning or retirement needs, but reforms are needed.”
The 25 percent government bonus on up to £4,000 in savings per year is an excellent incentive for people to save. However, the exit penalty of 25 percent takes away not only this bonus, but also your hard-earned money.
This is not only a deterrent to those who are saving for their first house, but also to those who wish to use the Lisa to save for retirement. This is especially true for self-employed people with variable earnings patterns, who might prefer the flexibility provided by the Lisa to a pension.
Recent HMRC statistics show that Isas are gaining in popularity as interest rates rise. In 2022-23 there were 12.5 million adult Isas, compared to 11.8 million accounts in 2021-22.
The number of Isas for cash increased by 722,000 while that of stocks and shares fell by 126,000. In 2022-23 there were 1.25 million Junior Isas, compared to 1.21 million accounts 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.
As the Bank of England base rates increased, so did savings rates. Base rates were recently reduced by 0.25 percentage point and the Bank of England held the rate to 5 per cent on Thursday.
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