Young Money Blog has played a key role in supporting young savers during coronavirus after it succeeded, along with key industry figures, in persuading the government to cut the exit charge on Lifetime Isas.
In a statement released today (May 1), the Treasury announced savers under 40 who have been badly hit by the COVID-19 pandemic would no longer be charged an additional 5% withdrawal fee for accessing their Lifetime Isa money early.
It followed concerns raised by Iona Bain and other key campaigners, including former pensions minister Sir Steve Webb, which were covered in the media earlier this week. Iona’s comments on the unfair withdrawal penalty were quoted in an important, in-depth piece on ThisisMoney, one of the country’s foremost financial websites.
Campaigners like Iona pointed out that the penalty was “morally unjustifiable”, given that Lifetime Isas are included in the £16,000 savings exclusion for claiming Universal Credit and yet they remained the only long-term savings product that was charging savers for early withdrawals.
This meant Lifetime Isa customers were the only long-term savers who faced an invidious choice between accepting less government support at this difficult time or being charged an excessive fee for the privilege of accessing crucial savings.
Media coverage of our csampaign played a big role in pressurising the government to reduce the Lifetime Isa exit charge from 25% to 20% in a matter of days.
The Lifetime Isa is available to anybody under 40 who wants to build funds for their first home or retirement. They can choose either a cash or stocks and shares version of the Lifetime Isa, and in return, they receive a 25% bonus from the government, up to a maximum of £1000, on what they save or invest.
Normally, those who take out the Lifetime Isa are expected to pay a 25% penalty – effectively 5% of their own money on top of the original government bonus. But this will be suspended for the rest of this tax year (untul 5 April 2021) and the change will also be backdated to 6 March to include anyone who has already tapped into their LISAs.
Iona Bain, founder of Young Money Blog, says:
“I am delighted that the Treasury has seen sense and reduced the withdrawal penalty on the LISA to 20%. It is particularly welcome that they have backdated this to include anyone who may have needed to withdraw their savings in desperation already and feared they were the victim of an unfair anomaly.“When people are stopped from going to work and earning a proper living, normal rules cannot apply, as the Treasury have recognised. This is natural justice for young savers who have tried to do the right thing, especially as they would not be eligible for claiming Universal Credit.“Hats off to journalists like George Nixon at ThisisMoney for helping our campaign to get the result thousands of young savers needed. But also, thank you to the Treasury for standing by young savers at this time, particularly when they will be sorely needed to help get the economy moving again when this is all over.“The Lifetime Isa is not a perfect product – not least because of that excessive penalty. But in giving young people more choice beyond the limited strictures of pensions, and an actual incentive to save and invest for the future, it represents real progress in young personal finance. But that progress needs to be underpinned by constant and careful revision of the rules to make sure they are really working for young people and helping them build their long-term prosperity.“I’m sure that when this crisis ends, the need to help the next generation save for the long-term will be more obvious than ever, and I hope we can have a grown-up conversation about how we can help young people to rebuild their finances – and lives.”
