19 September 2024
If you are covering the latest annual savings statistics from HMRC, please see the following comment from Rachael Griffin, tax and financial planning expert at Quilter:
“The latest Lifetime ISA figures from HMRC reveal savers took a whopping £75.3 million hit in Lifetime ISA unauthorised withdrawal charges in the 2023/24 tax year, a 30% or almost £21 million increase compared to the £58.3 million seen in the prior year. This comes as a result of almost 100,000 people needing to rip cash out of their savings to help make ends meet.
“These concerning figures illustrate just how many people continue to face a difficult battle over the need to save for the future versus the need to pay their bills, and higher costs have clearly won as so many have had to stomach the 25% charge to gain access to their money. In what remains a financially challenging time for many, we should not be overly penalising people for using their hard-earned savings. Yet, the punitive 25% penalty means that those who have done the right thing by saving are penalised if they need to access their cash.
“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.”
