Ministers are facing renewed criticism over the Lifetime ISA (LISA) scheme, as a cross-party committee of MPs warns that government reforms have not gone far enough to address fundamental flaws in the product. Despite repeated calls for change, the Treasury Committee says the LISA remains a "confused" offering—one that could be doing more harm than good for many savers, while costing taxpayers billions.
Introduced in 2017 under the then-Conservative government, the Lifetime ISA was designed to help people under 40 save for either their first home or for retirement. The idea was simple enough: savers can put away up to £4,000 a year, with the government adding a generous 25% bonus. That’s up to £1,000 extra annually, a tempting carrot for those dreaming of homeownership or a more comfortable retirement. But, as it turns out, the reality is a bit more complicated—and MPs are sounding the alarm.
According to the Treasury Committee’s latest report, published on September 11, 2025, ministers have yet to heed earlier warnings about the LISA’s shortcomings. Committee chair Dame Meg Hillier did not mince words: “The Government has taken some steps towards improving the Lifetime ISA, but I do not believe they have gone far enough. The Lifetime ISA is a confused product that requires reform.” Her concerns are echoed throughout the committee’s findings, which highlight the scheme’s dual purpose as a source of confusion and potential risk for savers.
So what’s the problem? For starters, the LISA’s dual role—helping people save for both a first home and for retirement—can pull savers away from more suitable financial products. As the committee points out, this “makes it more likely consumers will choose unsuitable investment strategies,” a risk that’s only compounded by the scheme’s rigid rules and penalties. Withdrawals are only allowed without penalty to buy a first home costing up to £450,000, from the age of 60, or in cases of terminal illness. Any other withdrawal faces a hefty 25% charge, which can eat into not just the government bonus, but also the saver’s own contributions.
Numbers from HM Revenue and Customs (HMRC) further fuel the debate. Recent research found that a striking 87% of those who used their LISA to buy a first home said they could have done so without it. That’s a sobering statistic, especially when you consider the scheme is forecast to cost the government—and by extension, taxpayers—£3 billion over the next five years. Dame Meg Hillier summed up the dilemma: “Given that the LISA is forecast to cost the Government £3 billion over the next five years, this raises the question of whether the LISA is a good use of taxpayers’ money.”
Despite these concerns, the government has largely defended the product. In its response to the committee’s report, the Treasury insisted it is “committed to making ISAs, including Lifetime ISAs, as simple and flexible as possible.” Official figures show that as of the 2023/24 tax year, more than 1.3 million LISA accounts were open, and since the scheme’s launch, 227,600 people have used their LISA to buy a first home. The government maintains that the £450,000 property price cap “supports most first-time buyers across the UK, including those households who may find it difficult to get onto the property ladder.”
But the committee isn’t convinced that these numbers tell the whole story. MPs have repeatedly raised concerns that the LISA may be pulling people away from more suitable savings vehicles—especially for those who might one day need to claim Universal Credit or housing benefit. Unlike other personal or workplace pension schemes, savings held in a LISA can affect eligibility for these benefits. The committee has called for LISA savings to be treated the same as pension savings in the Universal Credit means test. Failing that, they argue, the product should carry a clear warning that opening one could disadvantage claimants. The government’s willingness to consider such warnings is “welcome,” according to the committee, but falls short of a concrete commitment to address the issue.
There’s also the question of whether the government’s messaging around the LISA is clear enough. While ministers have pledged to work with the financial services industry and other departments to “improve the messaging” about how savings and investments can affect benefit entitlement, they have not detailed what changes that would involve. The committee wants more than vague promises—it wants action.
For many, the LISA’s rigid rules and potential pitfalls are already a source of confusion. Savers must make their first payment before turning 40 and can continue contributing until age 50. After that, no further payments or bonuses are allowed, but accounts remain open to earn interest or investment returns. Withdrawals for anything other than a first home (within the price cap), reaching age 60, or terminal illness are penalized, which can catch out those who aren’t fully aware of the rules.
Government officials, for their part, argue that the withdrawal penalty is necessary to ensure the product is used for its intended purpose—supporting first-time buyers or providing for retirement. “Across the vast majority of the country and in most London boroughs, the average price for a first-time home remains below the £450,000 Lifetime ISA cap,” a Treasury spokesperson said. “We are also committed to building 1.5 million more homes so that people can turn the dream of owning a home into a reality.”
Still, the debate rages on. The committee believes the government has an opportunity at the upcoming Budget to “think again on the LISA for would-be first-time buyers and those saving for retirement alike.” The product’s dual-purpose design, its impact on benefit eligibility, and the question of whether it truly helps those in need—or simply subsidizes those who could have achieved their goals without it—all remain open questions.
As the government keeps all aspects of LISA policy “under review,” many savers and would-be homeowners are left to navigate a landscape that’s anything but straightforward. With £3 billion of public money at stake and the dream of homeownership hanging in the balance for so many, the calls for reform are only getting louder. Whether ministers will finally deliver the clarity and change that critics demand remains to be seen, but for now, the Lifetime ISA stands as a cautionary tale of good intentions meeting complex realities.
