Labour confirms it's looking at savings reforms as MPs asked if it will scrap ISA product

Labour has been quizzed on its plans to reform Lifetime ISAs including the question of whether it could scrap the savings vehicle altogether.

Known as a LISA, it is intended to help people save up for their first home or towards their retirement, with the Government providing a 25% bonus on any deposits.

You can put in up to £4,000 a year, meaning you can get up to £1,000 a year in bonus cash. But there are important limitations on the account - you can only use the funds towards your first home, which must be valued under £450,000, once you turn 60, or are terminally ill.

Any other withdrawals will mean a 25% penalty, which will take away part of your initial deposit as well as the entirety of the bonus.

Treasury minister Emma Reynolds appeared before the Treasury Committee to discuss savers' experience using the scheme and its future.

Asked if they were considering changes to the product or even scrapping it altogether, Ms Reynolds said the Government is "looking at ISA reform" but refused to commit to any changes.

Ms Reynolds was also asked about the dual purpose of the ISA, the fact you can use the funds to buy your first property as well as towards your retirement.

She said in her reply: "You could argue that one of the benefits of the dual purpose is it's very flexible. You may have a situation where somebody is using it to purchase a home, that doesn't work out, they could actually use it for a pension later in life."

You can open an ISA between the ages of 18 and 40, and make deposits until the age of 50, meaning there is a 10-year gap between when you can no longer make deposits and when you can access the funds at age 60.

Brian Byrnes, Head of Personal Finance at Moneybox, which provides Lifetime ISAs, is calling for the rules to be changed.

He said: "While it's encouraging to see it on the agenda, we believe now is the moment to take action. Small, pragmatic changes-such as increasing the property price cap and adjusting the unauthorised withdrawal penalty-would ensure the LISA continues to deliver for first-time buyers in a fast-changing economic landscape.

"These aren't radical changes-they're common-sense updates that would make a great product even better."

Tom Silby, director of public policy at AJ Bell, also thinks the 25% withdrawal charge is too steep. He said: "It was disappointing that although promising to keep all options open, lowering the punitive 25% early withdrawal charge on Lifetime ISAs seems low on her (Ms Reynolds) priority list.

"Charges should reclaim any Government bonus, but taking away an additional 6.25% of the individual's own investment is harsh, especially as people don't plan these withdrawals, but end up doing so because life doesn't always go according to the script.

"Ms Reynolds may have kept us guessing on the detail of the reforms under consideration and the timing of any announcement, but this was as clear a sign as any that ISA reform is coming. The odds on a new ISA regime being introduced from April 2026 certainly shortened today."