"The Committee’s proposal to abolish the Lifetime ISA addresses the concern in many quarters the savings landscape has become over-complicated and difficult to navigate."
A new Treasury Committee report has called for the abolition of the Lifetime ISA due to "its complexity, its perverse incentives, its lack of complementarity with the pensions saving landscape and its apparent lack of popularity with the industry and pension savers".
The Committee says written evidence from UK Finance noted that the Lifetime ISA “has yet to prove popular with providers and has therefore seen limited take up by customers … we also have concerns on where LISA fits in the overall savings landscape… [and] would encourage the Government to consider extending the Help to Buy”.
The Pensions Advisory Service told the Committee that they have received no questions where the substantial part was about LISAs, and only three online queries since April 2017 (of 25,000) that mentioned the LISA at all.
However Skipton Building Society, the only high street provider offering a Cash Lifetime ISA, is urging the Government to ignore the Committee’s recommendation to abolish the Lifetime ISA.
Skipton says the report "overlooks the hundreds of thousands of people already using the product to boost their savings".
Since 6 June 2017, over 112,000 people have opened a Cash Lifetime ISA with Skipton, producing a collective balance of over £500 million. Almost nine in ten Skipton LISA members are using the account to save for their first home, with a small proportion using the product to provide for their retirement.
The report also suggests that the Government should also give "serious consideration" to replacing the lifetime allowance with a lower annual allowance, introducing a flat rate of relief, and promoting understanding of tax relief as a bonus or additional contribution.
Kris Brewster, Skipton’s head of products, said: “Originally, the Government aspired to see 200,000 Lifetime ISA accounts opened in the first wave of activity. At Skipton, in just over one year, we have opened over 112,000 accounts for our members. We believe the Lifetime ISA can make a real difference for people wanting to get on the housing ladder.
“There are several other providers offering stocks and shares LISAs, along with recent announcements of other financial organisations confirming their intent to launch a Lifetime ISA. We believe the consumer response and uptake of this product, plus the positive intentions which the savers have, demonstrate the success of the account and indicate a real consumer need for savings products which support home ownership."
Tom McPhail, head of policy at Hargreaves Lansdown, added: "The Committee’s proposal to abolish the Lifetime ISA addresses the concern in many quarters the savings landscape has become over-complicated and difficult to navigate. However the LISA is proving popular with those who are eligible so we’d want to see a proper consultation process before the government took any steps in this direction. A root and branch review and simplification of retail savings and tax incentives would be welcome but is almost certainly beyond the capabilities of this government, certainly until Brexit is resolved.
"We also welcome proposals to simplify the savings system and in particular pensions tax reliefs and limits. The Committee’s proposals for abolition of the Lifetime Allowance limit, offset by a lower Annual Allowance and a flat rate of government ‘tax relief top up would enjoy widespread support."