Figures confirm that people are investing for the medium and long term, as intended
Pension providers have hailed the success of the Lifetime Isa as the product approaches its second birthday, with latest figures showing minimal withdrawals to date.
The product went live in April 2017, and offers a 25 per cent government bonus on savings of up to £4,000 a year for those looking to fund their first home purchase or retirement.
The government agreed to waive the exit penalty of 25 per cent for non-qualifying withdrawals in the first tax year. This would have applied to the total pot, not the initial contributions, meaning savers could have been left with an effective loss.
Money Marketing approached a range of Lifetime Isa providers for an indication of how many clients had decided to pull their Lisa savings at this early stage, and the level of exit penalties that the government could have taken without the waiver. Hargreaves Lansdown confirms that of the nearly 50,000 Lifetime Isa accounts it has set up, non-qualifying withdrawals have occurred on less than 1 per cent.
AJ Bell reports that only 40 customers withdrew and closed their Lisa before 5 April 2018. These clients would have forgone the government bonus, but would also have avoided the exit penalty.
An AJ Bell spokesman says: “The Lifetime Isa has been designed for people to save for a deposit on a first home or to supplement their retirement savings. Even if using it for the shorter-term purpose of a house purchase, it is still likely to be a medium-term investment given you can only save a maximum of £5,000 a year, including the government bonus.
“You would, therefore, expect limited early withdrawals, particularly given that the early exit penalty that now applies is overly punitive. Even in the first year, when the exit penalty didn’t apply, it is no surprise to see limited withdrawals because investors would have gone into the product with a medium- to long-term objective in mind and that is absolutely the right approach.”
Skipton declined to comment on the basis the figures were commercially sensitive. Moneybox also declined to give an answer. Transact and The Share Centre did not respond to requests for comment by the time of publication.
Nutmeg said it could not provide data because once a customer has closed their Lisa with it, and they are no longer a client, the firm does not keep any data about them or their account size.
HM Revenue and Customs was able to provide data that shows 166,000 Lisa accounts were opened in the 2017-18 tax year.
The original target the government outlined was for 200,000 accounts to be opened.
The total subscribed was £517m, meaning the average amount saved was around £3,100. However, HMRC did not provide details on withdrawals.
The Treasury was also unable to provide any further information on the tax take from the product.