• A record 77,500 Lifetime ISA (LISA) savers were clobbered with over £33 million worth of early withdrawal charges in 2021/2022, new official data reveals (Annual savings statistics 2022 - GOV.UK (www.gov.uk))
• In April 2022, 8,900 LISA savers made unauthorised withdrawals worth over £14 million – comfortably the highest figures for the year
• The average unauthorised withdrawal in April 2022 was £1,611 and £1,706 over the 2021/2022 tax year.
• Cost-of-living crunch will inevitably force more LISA savers to dip into their pot earlier than planned
• Treasury urged to act now by cutting the LISA early withdrawal charge from 25% to 20% - just as it did when the pandemic first hit
• Cutting the charge to 20% would mean someone making a £1,611 early withdrawal would pay £322.20 to the Treasury rather than £402.75
Tom Selby, head of retirement policy at AJ Bell, comments:
“Millions of Brits are facing a devastating income squeeze in 2022 and many will need to turn to their savings in order to make ends meet.
“Lifetime ISAs (LISAs) have been hugely popular since launching in 2017, allowing young people to benefit from a combination of a 25% upfront bonus and tax-free withdrawals for the purchase of a first home or when they turn 60.
“Another benefit of LISAs is that they can be accessed in an emergency, and in April almost 9,000 savers decided to take their money out early as inflation reached a 40-year high.
“However, rather than just aiming to return the upfront Government bonus, the Treasury chooses to use the early withdrawal charge to clobber hardworking savers, with the charge effectively acting as a 6.25% penalty on unauthorised withdrawals.
“The average value of a LISA accessed early dropped nearly 50% in 2021/2022, from £3,310 to £1,706; it indicates that even those with relatively small savings that may have only recently opened an account are already seeing their plans scuppered as they’re forced to take the money out early.
“Continuing to apply this penalty during one of the most significant periods of economic and financial turmoil in living memory is extremely unfair.
“The Treasury cut the early withdrawal charge from 25% to 20% during the pandemic in order to ensure those accessing their LISA while facing serious hardship were not unfairly penalised. That same logic surely has to be applied today.”