AJ Bell has urged the government to make its Lifetime ISA exit charge reduction permanent.
As part of the government’s emergency response to coronavirus last spring, the Treasury reduced the Lifetime ISA exit charge for 2020/21 from 25% to 20%.
The exit penalty is due to increase back to 25% from 6 April 2021, but AJ Bell has warned that unemployment and “serious financial hardship” is likely to come if the government support is pared back.
The investment platform said it would mean anyone under the age of 60 who wants to access their money for anything other than a first house purchase will face not only paying back the government bonus they received on the money they paid into their Lifetime ISA, but also “being hit with a penalty on top of that”.
“The Treasury’s decision to cut the Lifetime ISA exit charge from 25% to 20% for 2020/21 was pragmatic and designed to ensure those facing serious financial hardship during lockdown could at least get at their savings without being unfairly penalised,” commented AJ Bell senior analyst, Tom Selby.
“The increase in the exit penalty will likely be happening at the same time as millions of employees are being moved off furlough support and facing huge financial insecurity.
“While some jobs will remain viable as the UK economy hopefully begins to open up, many will sadly be lost. Anyone facing unemployment at this time may well need to use their savings to make ends meet – including money set aside for the future in a Lifetime ISA.”
AJ Bell has called on Chancellor, Rishi Sunak, to provide certainty for savers by making the Lifetime ISA exit charge reduction to 20% permanent.
“Setting the Lifetime ISA exit charge at 25% always felt an unfair punishment for those who choose to access their money early and runs counter to the overall aim of the product,” Selby added.
“As a minimum the government should keep the exit charge at 20% for the 2021/22 tax year. But a preferable solution would be to make the reduction permanent, meaning the aim of the charge would simply be to return the upfront bonus.”
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