A Redesign of the Lifetime ISA

The government is looking to replace the Lifetime ISA (“LISA”) with a redesigned product that is expected to remove the retirement saving function and solely focus on first time buyers. 

A LISA currently allows individuals to save up to £4,000 a year with a 25% government bonus, usable either for retirement after the age of 60 or for a first home purchase up to the value of £450,000. If the savings are used for any other purpose a withdrawal charge applies. To open a LISA you must be aged 18-39, and contributions can continue until age 50.

It is anticipated that the government will publish a consultation for the replacement product within the next few weeks, with the new product set to be rolled out in April 2028. At present, no plans for an alternative retirement product have been proposed.

Although the LISA has been praised for encouraging savings and offering strong value through the government bonus, the product has received criticism for its complexity. In June 2025, a Treasury Committee report found that the dual-purpose design increases the risk of savers selecting unsuitable investment strategies and that the LISA may divert individuals from saving in more efficient pensions. However, the report did find that LISAs can be a useful supplementary retirement saving vehicle, particularly for self-employed workers.

Self-employed workers are a group that could be disproportionately affected by the product redesign. Where self-employed individuals do not benefit from auto-enrolment or employer contributions, LISAs have been a valuable savings tool, allowing retirement saving without tying up money to quite the same extent as a pension scheme because early withdrawals are permitted with a 25% charge. Although self-employed workers can save for retirement through other products such as SIPPs (“Self-Invested Personal Pensions”), each product provides different advantages depending on the circumstances of the saver, meaning they are not direct substitutes for one another, and as such are often used in tandem. The removal of the retirement saving function without a suitable alternative could impact some workers, especially the self-employed, who already have historically low levels of retirement savings. 

This raises wider considerations as to the adequacy of retirement pensions and lifetime savings more generally; because removing an accessible incentive‑based saving route may leave a wider group of savers contributing less for retirement. Even for savers contributing to a workplace pension scheme, adequacy concerns can persist due to therefore often being limits on the percentage employees can contribution to their pensions and modest employer funding. In this context, the LISA can offer meaningful value as a complementary product that helps boost overall retirement savings. You can read more about pensions adequacy developments in our June article: Government and Employer Initiatives to Improve the Pensions of the Future. 

There seems to be support across the pensions industry for reforming rather than scrapping the LISA; with financial service providers and industry bodies advocating for reductions to the withdrawal penalty and age restriction for contribution, as well as a call to separate out the retirement savings function from the house deposit function. 

In light of the plans to remove the retirement aspect, PensionBee has called on the Government to consider incentives that would support transfers from LISA into personal pensions, such as a one off basic rate tax bonus to compensate for the withdrawn government top-up. Pensions UK has alternatively suggested that self-employed workers should be brought within the scope of automatic enrolment, noting that automatic enrolment could better support savers in comparison with the LISA; citing the compounding benefits of tax relief and stronger governance provided. Although there a number of suggested approaches, it remains to be seen how much further consideration will be given to the retirement function, or whether government focus will remain primarily on supporting first‑time buyers. We will continue to monitor further developments in this area with interest.

Written by Lauren Young and Maegan Watts