Calls to scrap the Lifetime Isa (Lisa) have opened up a wider debate about the need to simplify the Isa landscape.
Carol Knight, chief operations officer at the Tax Incentivised Savings Association (Tisa) said, following the introduction of Isas in 1999, there was a drive to simplify the offerings. However, over the past four years, the Isa sector has gradually become more complicated.
There are now six different Isas: stocks and shares, Junior Isas (Jisas), Help to Buy (H2B), Innovative Finance, the Lisa and cash Isas.
Ms Knight said: “We have some flexible Isas and then we have stocks and shares. It just gets too complicated for people to find their way around a product set.”
An individual can only subscribe to one cash Isa in any tax year, which according to Ms Knight presents a big problem for savers.
The Treasury Committee recently called on the government to abolish the Lisa, criticising the product for “its complexity and its inconsistency with the other parts of the long-term savings landscape, which has contributed to its limited take-up by customers and providers”.
Hargreaves Lansdown is one of the largest providers of Lisas – it has 40,000 Lisa customers.
- There are now six different Isas available
- The Lisa has had a mixed response from providers
- The Lisa seems to be more popular as a product for saving for property purchase
Tom McPhail, head of retirement policy at the company, said although it had been a “slow burn” for people to open up Lisa accounts, in more recent times the momentum had increased.
For Mr McPhail, the Lisa addresses some consumer needs that are not being adequately catered to – for example, self-employed individuals who would not be part of an auto-enrolment scheme as a full-time employee would, and younger basic rate tax-payers.
Danny Cox, head of communications at Hargreaves Lansdown, added: “If you are going to just look at a Lisa you have to look at it as a wider simplification of the wider Isa system. The Lisa is not perfect, but it is a good thing for savers.”
Likewise, Tom Selby, senior analyst at AJ Bell, said he did not agree with the conclusions of the committee, as he did not think they had set out a coherent argument.
Mr Selby said: “It is a relatively simple product. People understand the idea of a 25 per cent bonus. The fact that bonus is paid monthly is a good thing as they can benefit from the compound growth.”
Although Mr Selby argued the government did not make a strong enough case to scrap the Lisa entirely, he acknowledged that there were still flaws in the product.
One of the main drawbacks to the Lisa, savings experts say, is that if a withdrawal is made from the Lisa account for anything other than a house purchase, then the entire amount is hit with a 25 per cent penalty. This penalty element particularly has put off a lot of providers from entering the market.
When the Lisa was set up, it was also seen as a good vehicle to help self-employed individuals save, but an individual can only open a scheme if they are aged between 18 and 40.