The government has been accused of making up the rules as it goes along after announcing a last-minute change to its savings product, the Lifetime ISA, or Lisa.
Jane Ellison, financial secretary to the Treasury, has revealed that a planned 5 per cent exit penalty on savers making early withdrawals will no longer apply in the first year of the new product.
The Treasury made the concession because in the first year of operation, the government bonus of up to £1,000 will only be paid at the end of the year. Savers making unauthorised withdrawals in the first few months of the scheme would suffer the penalty charge before they received the bonus.
In subsequent years, the government bonus is due to be paid monthly, alleviating the problem. Ms Ellison told the Commons on Monday evening that she was “making a small change to charges on early withdrawals . . . for the benefit of consumers.”
Steve Webb, the former Liberal Democrat pensions minister, said that the change would confuse consumers over what was already a complex product.
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It was “a further sign that the Lisa has not been properly thought through”, said Mr Webb, who is now policy director at Royal London, the insurer. “The new product . . . is due to be implemented in just a few months’ time, and yet the government is still making up the rules as it goes along.”
Lifetime ISAs are due to be launched next April. Available to people between 18 and 40, they will offer a government bonus of £1,000 a year for every £4,000 saved. However, the money must be saved for a first home or accessed only after the age of 60.
Ms Ellison said that those wanting to make a withdrawal in the first year would have to close their account at no charge, but would be free to open another Lisa account in the same year.
The British Bankers’ Association welcomed the change, which would ensure that savers weren’t disadvantaged in the first year, but said that it highlighted how the exit penalty should be considered before investing.
Baroness Altmann, a Conservative former pensions minister, has already dubbed the Lisa “a mis-selling scandal waiting to happen” because it might discourage people from saving in conventional pension schemes, which in most cases are more generous because of employer contributions and tax relief.
