Calls for reform of the Lifetime ISA (LISA) have reached a crescendo as MPs and financial experts criticize the government’s reluctance to overhaul a product they describe as confusing, potentially misleading, and not fit for purpose. Despite repeated warnings from the influential Treasury Committee, ministers have so far failed to implement meaningful changes, leaving savers and would-be homeowners in limbo ahead of the critical November Budget.
The LISA, introduced in 2017, was designed to help people under 40 save either for their first home or for retirement. The product allows savers to deposit up to £4,000 a year, with the government adding a 25% bonus—up to £1,000 annually. But as property prices have soared and financial needs have shifted, critics argue that the LISA’s rules and limitations no longer serve their intended audience effectively.
According to BBC News, the Treasury Committee’s June 2025 report found that LISAs are being mis-sold and do not suit everyone. The dual-purpose design—offering both a path to home ownership and a retirement savings vehicle—has, in the committee’s view, led many to choose unsuitable investment strategies. "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," said Dame Meg Hillier, Chair of the Treasury Select Committee, as reported by The Independent.
One of the most contentious issues is the LISA’s withdrawal rules. Savers can only access their money without penalty if they are buying their first home (worth up to £450,000), are aged 60 or over, or are terminally ill with less than 12 months to live. Any other withdrawal incurs a 25% charge on the total amount, which means savers lose not just the government bonus, but some of their own money as well. For example, if someone saves £1,000 and receives a £250 bonus, they’ll have £1,250. If they withdraw early, the penalty is £312.50—leaving them with just £937.50, less than their original savings.
Another sticking point is the property price cap. The £450,000 limit has not changed since the LISA’s inception, even as house prices have climbed steeply in many parts of the UK. This has left some first-time buyers unable to use their LISA savings for homes in their preferred areas, undermining the product’s original intent. The government, however, maintains that "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," according to a Treasury spokesperson cited by The i Paper.
But the debate goes beyond technicalities. The Treasury Committee has questioned whether the LISA is a good use of public funds. The product is forecast to cost the government £3 billion over the next five years. Yet, research by HM Revenue and Customs (HMRC) found that 87% of those who used their LISA to buy their first home said they could have done so without it. "Given that the LISA is forecast to cost the Government £3bn over the next five years, this raises the question whether the LISA is a good use of taxpayers’ money," Dame Meg Hillier pointed out in The Independent.
The government’s response to the committee’s concerns has been measured, if not entirely satisfying to critics. Ministers have expressed willingness to work with industry and across departments to "improve the messaging" about how LISA savings might affect benefit entitlement, particularly Universal Credit. Currently, LISA savings can impact eligibility for Universal Credit or housing benefit, unlike other pension schemes. The committee has called for LISA savings to be treated the same as other pension savings in relation to the Universal Credit means test. In the absence of such reform, they argue that LISAs should be clearly labelled as inferior products for those who may one day claim Universal Credit.
Despite these criticisms, the government has pointed to the product’s reach and impact since its launch. As of the 2023/24 tax year, more than 1.3 million LISA accounts were open, and since 2017, the LISA has helped 227,600 people buy their first property. Ministers say the withdrawal charge is in place to ensure that the product is used for its intended purposes: homeownership for first-time buyers or later-life savings.
Financial experts have also weighed in. Martin Lewis, a prominent campaigner, told The i Paper in 2023: "Fixing the existing LISA – the massive hole that has made it a dead duck product for so many people – was an easy win." The sentiment among many in the financial advice community is that the product’s dual-purpose nature increases the risk that consumers will make poor choices, potentially putting their savings at risk. Cash LISAs may work for those saving for a first home, but may not be suitable for retirement savers who could benefit from higher-risk, higher-return investments such as equities or bonds.
For its part, the government insists it is "committed to making ISAs, including Lifetime ISAs, as simple and flexible as possible." Officials argue that the property price cap is designed to support most first-time buyers across the UK, including those struggling to get onto the property ladder. There’s also a pledge to build 1.5 million more homes, with the aim of making homeownership a reality for more people.
Yet, the Treasury Committee’s dissatisfaction remains palpable. MPs argue that without significant reform, the LISA risks being an inferior product that could mislead savers or even disadvantage them—especially those who may later need to claim benefits. The committee has urged the government to seize the opportunity presented by the upcoming Budget to reconsider the LISA’s role for both first-time buyers and retirement savers.
As the November Budget approaches, all eyes are on whether ministers will heed the call for reform or continue to defend a product that, for many, has lost its shine. The stakes are high—not only for the 1.3 million account holders, but for taxpayers and future generations seeking a fair shot at financial security and homeownership.
With the government’s next move uncertain, the debate over the LISA’s future is set to remain a flashpoint in the broader discussion about saving, homeownership, and retirement in the UK.
