Permanently reduce the Lifetime ISA - withdrawal penalty?

MrMorgan

Spotted this current petition thats gaining traction
https://petition.parliament.uk/petitions/570826
Personally im for it, as its good to not be penalised for taking your own money back if you really have too
Whats everyones thoughts on this?

masonic

I'm ambivalent towards the penalty. Rates on cash LISAs have typically been low, so people are have already penalised when using them as normal savings accounts, and S&S LISAs are not suitable to be used for short term savings. On the other hand, the small net ~6% penalty may serve a purpose as a deterrent from cashing in your LISA funds for frivolities.

veryintrigued

Not for me thanks.

Plenty of the fixed term accounts I hold have a penalty clause attached. I'm not aware these are about to be changed.

Brutal as it may seem (yep I know the pandemic argument etc) we all have times and occasions in our lives where deaths, divorces and other life events mean we have to take a hit on investments and savings we were convinced were set up with bullet proof planning.

Those poor kids (i.e. <  age for LISA opening threshold) are going to be paying this Covid debt off all their lives aren't they?

[Deleted User]

masonic said:

I'm ambivalent towards the penalty. Rates on cash LISAs have typically been low, so people are have already penalised when using them as normal savings accounts, and S&S LISAs are not suitable to be used for short term savings. On the other hand, the small net ~6% penalty may serve a purpose as a deterrent from cashing in your LISA funds for frivolities.

We get 1K bonus a year with 4k in a year, can't really beat that!

masonic

Deleted_User said:

masonic said:

I'm ambivalent towards the penalty. Rates on cash LISAs have typically been low, so people are have already penalised when using them as normal savings accounts, and S&S LISAs are not suitable to be used for short term savings. On the other hand, the small net ~6% penalty may serve a purpose as a deterrent from cashing in your LISA funds for frivolities.

We get 1K bonus a year with 4k in a year, can't really beat that!

As per the thread title, the penalty for withdrawals made before age 60 that don't go towards a first time property purchase is 20% rising to 25% at the end of the tax year. The 20% penalty wipes out the £1k bonus, while the 25% penalty results in you getting back less capital than you paid in.

Thrugelmir

If there was no penalty. Then providers would be less reluctant to offer the product. Administration costs money. People would be cashing in for all sorts of reasons. 

Alexland

As a couple who have made full use of the LISA since launch the exact penalty 25vs20% doesn't matter as we have no intention of withdrawing while any penalty applies. My preference would be to see the penalty removed completely after age 50 to allow it to be used for early retirement but we are probably in the minority of 'poor old kids' making heavy contributions into both pensions and LISAs each tax year.

eskbanker

Thrugelmir said:

If there was no penalty. Then providers would be less reluctant to offer the product. Administration costs money. People would be cashing in for all sorts of reasons. 

More reluctant surely?

[Deleted User]

masonic said:

Deleted_User said:

masonic said:

I'm ambivalent towards the penalty. Rates on cash LISAs have typically been low, so people are have already penalised when using them as normal savings accounts, and S&S LISAs are not suitable to be used for short term savings. On the other hand, the small net ~6% penalty may serve a purpose as a deterrent from cashing in your LISA funds for frivolities.

We get 1K bonus a year with 4k in a year, can't really beat that!

As per the thread title, the penalty for withdrawals made before age 60 that don't go towards a first time property purchase is 20% rising to 25% at the end of the tax year. The 20% penalty wipes out the £1k bonus, while the 25% penalty results in you getting back less capital than you paid in.

Yes but anyone getting the account is unlikely to withdraw for any other reason than buying a home. For the majority it is a great account.

masonic

Deleted_User said:

masonic said:

Deleted_User said:

masonic said:

I'm ambivalent towards the penalty. Rates on cash LISAs have typically been low, so people are have already penalised when using them as normal savings accounts, and S&S LISAs are not suitable to be used for short term savings. On the other hand, the small net ~6% penalty may serve a purpose as a deterrent from cashing in your LISA funds for frivolities.

We get 1K bonus a year with 4k in a year, can't really beat that!

As per the thread title, the penalty for withdrawals made before age 60 that don't go towards a first time property purchase is 20% rising to 25% at the end of the tax year. The 20% penalty wipes out the £1k bonus, while the 25% penalty results in you getting back less capital than you paid in.

Yes but anyone getting the account is unlikely to withdraw for any other reason than buying a home. For the majority it is a great account.

This thread is specific to withdrawals that do incur the penalty. While most people may intend to use the account for a house purchase, a significant number are using a S&S LISA for retirement. Anyone could be put into an adverse position where they have to consider making a withdrawal for other reasons. The reason for reducing the penalty to 20% from 25% was that Covid made that very situation more likely. So, as I first commented: "Rates on cash LISAs have typically been low, so people are have already penalised when using them as normal savings accounts" [i.e. not for retirement or house saving]

At no point have I suggested these are not good accounts in cases where they are used for the intended purposes.

Thrugelmir said:

If there was no penalty. Then providers would be less reluctant to offer the product. Administration costs money. People would be cashing in for all sorts of reasons. 

The penalty is paid to HM Treasury. I don't think the providers get a share of it. Perhaps you mean the penalty puts people off opening an account in the first place, but it seems like the lack of popularity of LISAs has been part of the reason why providers are reluctant to offer them.

Thrugelmir

masonic said:

Deleted_User said:

masonic said:

Deleted_User said:

masonic said:

I'm ambivalent towards the penalty. Rates on cash LISAs have typically been low, so people are have already penalised when using them as normal savings accounts, and S&S LISAs are not suitable to be used for short term savings. On the other hand, the small net ~6% penalty may serve a purpose as a deterrent from cashing in your LISA funds for frivolities.

We get 1K bonus a year with 4k in a year, can't really beat that!

As per the thread title, the penalty for withdrawals made before age 60 that don't go towards a first time property purchase is 20% rising to 25% at the end of the tax year. The 20% penalty wipes out the £1k bonus, while the 25% penalty results in you getting back less capital than you paid in.

Yes but anyone getting the account is unlikely to withdraw for any other reason than buying a home. For the majority it is a great account.

This thread is specific to withdrawals that do incur the penalty. While most people may intend to use the account for a house purchase, a significant number are using a S&S LISA for retirement. Anyone could be put into an adverse position where they have to consider making a withdrawal for other reasons. The reason for reducing the penalty to 20% from 25% was that Covid made that very situation more likely. So, as I first commented: "Rates on cash LISAs have typically been low, so people are have already penalised when using them as normal savings accounts" [i.e. not for retirement or house saving]

Thrugelmir said:

If there was no penalty. Then providers would be less reluctant to offer the product. Administration costs money. People would be cashing in for all sorts of reasons. 

The penalty is paid to HM Treasury. I don't think the providers get a share of it. Perhaps you mean the penalty puts people off opening an account in the first place, but it seems like the lack of popularity of LISAs has been part of the reason why providers are reluctant to offer them.

For lenders it's not the penalty itself, but the increased level of activity it would create. Employing people is very expensive. Particularly at a time when cutting costs is a primary objective.