Burnham is wrong to scrap the Lifetime ISA

The Lifetime ISA is a successful product, and new reforms will only make it better. So why is the government still going to scrap it, asks Brian Byrnes

Introduced in 2017 to help young people navigate the twin challenges of buying a first home and saving for retirement, the Lifetime ISA (LISA) had a clear but ambitious purpose.

Since then, it has helped over 417,000 first-time buyers purchase over £67.5bn worth of property in towns and cities across the UK. However, in the almost 10 years the product has been around, industry and LISA users have been calling for thoughtful upgrades to future-proof the product to ensure it continues working for the vast majority of savers.  

In the Budget, the government announced an upgrade to the Lifetime ISA that we have long called for: a reduction in the penalty withdrawal for first-time buyers using the product to buy a property over the £450,000 price cap. 

We are thrilled about this decision and it is a massive victory for first-time buyers, particularly in high-cost regions like London and the South East where rising property prices have left many facing unfair penalties.

With this update having been made, it begs the question whether the focus for those supporting first-time buyers should remain on continuing to enhance this successful product, or should it be on introducing a completely new First-Time Buyer ISA in 2029?

Newer doesn’t mean better

The proposed First-Time Buyer ISA, also outlined in the Budget, has some sensible features. It would be open to all UK first-time buyers aged 18 and over, with no upper age limit, and would retain the £4,000 annual contribution allowance. Its bonus, up to £1,000 per year and capped at £20,000 over the lifetime of the product, would be paid at purchase, removing the need for a withdrawal charge.

But these features do not make the new account a better alternative to the upgraded LISA. For example, by paying the government bonus only at the point of purchase, future savers would lose the opportunity to earn interest or investment growth on monthly bonus payments. For a typical 10-year saver, replacing monthly bonus with a single payout at purchase strips away £3,606 in compound growth.

Crucially, the monthly government bonus is a vital engine for habit formation. At Moneybox, we see firsthand how receiving that regular monthly reward acts as a powerful motivator, encouraging LISA savers to consistently build towards their goal. Delaying the bonus until completion risks stripping away the product’s most effective behavioural incentive.

The LISA is a proven success

The LISA also offers an important benefit the proposed new product will not: a route to boost retirement savings. For basic-rate taxpayers who are self-employed, or employed and already maximising their employer’s pension contributions, a LISA can be a valuable addition to a wider retirement plan. At a time when the Pensions Commission has warned that more than 15m people are undersaving for retirement, we should be expanding, not reducing, people’s options to prepare for later life.

The Lifetime ISA is a proven, highly effective product that is now fairer and more accessible than ever. Rather than scrapping it, the government should double down on reforming and expanding the LISA. It remains the absolute best vehicle for young people striving to get on the property ladder and build long-term financial security – and we must preserve and strengthen it for generations to come.

Brian Byrnes is director of personal finance at Moneybox