Sumary of Younger savers paid £33m in charges to raid Lifetime Isas in pandemic:
- Younger savers withdrew around £165million from Lifetime Isas during the pandemic and repaid the Government some £33million in bonuses, new figures reveal.
- Withdrawal charges were cut to 20 per cent from 25 per cent for a year in order to avoid penalising people who urgently needed cash if they lost jobs or fell on hard times during the crisis.
- Financial firm Quilter, which obtained the charges data via a freedom of information request to HMRC, says: ‘These stark figures illustrate how many people needed to raid their savings to cope with the financial strain brought on them by the pandemic.
- Lifetime Isas allow under-40s to save for a home and retirement at once, and the Government offers free bonuses worth up to £32,000 if you max out your fund during your younger to middle-aged years.
- Find out how they work hereBut they have come in for criticism from financial experts amid fears younger savers will make poor decisions, for example by missing out on free employer contributions into a pension if they opt to use a Lifetime Isa to save for old age instead.
- The 25 per cent withdrawal levy, which is meant to deter people from using them for anything other than the two savings goals they were set up to meet, has been controversial too.
- Quilter found that early withdrawal charges were much lower at £5million in 2018-19 and £10million in 2019-20, meaning they more than tripled during the pandemic, and that a total of £48million was clawed back from holders for taking out their money across three years.
- However, these figures also reveal that the Lifetime Isa has some significant flaws in its design.