Data showed that the number of Lifetime Isa penalties rose 17 per cent in 2022.
A Lifetime Isa has a contribution limit of £4,000 per year, and if held until age 60 the consumer receives a 25 per cent bonus from the government.
A penalty is incurred when a consumer draws money from a Lifetime Isa, or transfers the savings to another type of Isa before age 60.
The consumer is also hampered if they purchase a home with a Lisa that is worth more than £450,000, a figure which has not changed since 2017.
People are trying to do the right thing and build up their financial resilienceHelen Morrissey, Hargreaves Lansdown
The average UK house price has risen from £215,243 in January 2017 to £294,329 in December 2022, according to the Office for National Statistics.
This penalty was reduced to 20 per cent during the pandemic, however this has now been restored at the original rate of 25 per cent.
Hargreaves Lansdown has called for this penalty to be permanently reduced to 20 per cent.
Although the number of penalties rose last year, the total value fell from £5.1mn in 2021 to £4.6mn last year, with the average penalty dropping from £1,000 in 2021 to £793 last year.
Some 5,000 of Hargreaves Lansdown’s accessed their Lifetimes Isas during 2022 and incurred a penalty as a result.
Helen Morrissey, head of retirement analysis at Hargreaves Lansdown said the penalty not only removes the bonus but means the consumer forfeits some of their savings.
“As an example, someone saving £4,000 into their Lisa would receive a 25 per cent top up to £5,000.
“However, if they needed to access that money the 25 per cent penalty would add up to 25 per cent of £5,000 so they lose £1,250.”
The penalty should be reduced to 20 per cent permanently, she said.
“People are trying to do the right thing and build up their financial resilience and they shouldn’t be penalised for having to access them during tough times.”