22 June 2023
If you are covering HMRC’s annual savings statistics, please see the following comment from Rachael Griffin, tax and financial planning expert at Quilter:
Lifetime ISA withdrawal charges hit £47.2 million
“Savers took a huge £47.2 million hit in Lifetime ISA unauthorised withdrawal charges in the 2022/23 tax year as 56% more people have been forced to rip cash out of their savings to help make ends meet. This figure has skyrocketed by 53% or almost £17 million compared to £30.8 million in 2021/22, and by more than £13 million compared to 2020/21 when the pandemic saw people struggling to stay afloat during the numerous lockdowns.
“These concerning figures illustrate just how many people are facing a difficult battle over the need to save for the future versus the need to pay their bills, and rising costs have clearly won as so many have had to stomach the 25% charge to gain access to their money. In this time of financial hardship, we should not be overly penalising people for using their hard-earned savings, yet the punitive 25% charge not only removes the government’s bonus but eats into people’s own savings too.
“The figures reiterate the desperate need for reform of the Lifetime ISA. The LISA attempts to fix two polar opposite problems; saving for a house and saving for retirement, and fails to do either adequately with even its name not alluding properly to either of its main purposes. What’s more, they are treated like an ISA for a means test assessment for Universal Credit, yet they carry an early withdrawal charge like a pension – it is a worst of both worlds.
"To simplify the current offering and make it fairer for savers who have no choice but to dip into their savings, the rules should at the very least be adjusted to only take away the bonus rather than raid people’s savings as well. This could easily be achieved by dropping the 25% penalty to 20%, essentially ridding the product of an exit charge levied on people’s actual savings and could encourage more people to save.”
Cash ISA subscriptions drop for second consecutive year
“While interest rates gradually increased on Cash ISAs in this period, they remain well below the level of inflation. Therefore, it is reassuring to see that savers have continued to see the benefits of investing. The share of accounts subscribed to cash fell for the second year in a row, dipping to 61% in 2021/22 from 66% in 2020/21, while the number subscribing to stocks and shares ISAs increased by 345,000.
“The continued rise of subscriptions to stocks and shares ISAs suggests more people are looking for better returns in this high inflationary environment. While the interest rates on Cash ISAs have risen somewhat, the higher rates are not passed onto consumers at quite the same pace as the Bank of England has been increasing them, so inflation will still be eating away at people’s cash savings in real terms. Plus, this period only accounts for the Bank’s early interest rate rises in 21/22.
“Though investments can go down as well as up, those looking to invest via a stocks and shares ISA over a longer period could reap the rewards of compound returns. Where possible, if you are considering investing in a stocks and shares ISA then you should seek professional financial advice to help you assess your own personal financial needs, evaluate how much you can afford to invest and for how long, and what level of risk is appropriate for you to take based on your personal circumstances and longer-term goals.”
