The Lifetime ISA (LISA) was launched in April 2017, and allows people aged 18 to 39 to open an account and benefit from a 25% government bonus on savings of up to £4,000 a year.

But now, less than 18 months on from its introduction, MPs are calling for the savings product to be abolished following a lack of take-up among providers.

In a report by the Treasury committee, the LISA was criticised for "its complexity, its perverse incentives, its lack of complementarity with the pensions saving landscape and its apparent lack of popularity with the industry and pension savers".

Meanwhile, LISA providers have argued against the proposal to withdraw the product.

Martin Stead, chief executive at Nutmeg, said:

"The LISA is not yet two years old. The government should be investing time and money in promoting this product, not debating whether or not to keep it."

Despite the controversy surrounding the product, there are certain reasons a LISA could still be a helpful option for you.

Buying a home

First-time buyers can use the savings in their LISA to put towards buying a home.

It can only be used to purchase property worth up to £450,000, with a residential mortgage. You need to have had the account open for at least 12 months before you make this purchase.

If you're buying as a couple, you and your partner can use your separate LISAs to contribute towards the purchase. You must both be first-time buyers to avoid any penalty.

LISA v Help to Buy ISA

Those saving to buy a first home have another savings option - the Help to Buy ISA.

In terms of overall savings, the LISA allows you to save more into the account each year and offers a potentially larger government bonus.

However, it's not as flexible as Help to Buy, and carries the risk of a 25% penalty if it's not used to buy a first home.

You can open and pay into both ISAs at the same time, but you can only get the government bonus on one of them when buying your first home.

Speak to us if you're not sure which option is better for you.

Saving for retirement

After the age of 60, savers can use their LISA to supplement their retirement income.

However, one of the concerns raised by the Treasury committee's inquiry was that savers would use the LISA instead of saving into a workplace pension.

If you're employed, between the age of 22 and state pension age and earning more than £10,000 a year, you'll be automatically enrolled into your employer's workplace pension scheme.

This allows you to benefit from both contributions from your employer and government tax relief.

LISAs are just one of many methods you could use to top up your retirement savings. Be sure to seek professional advice before making any changes to the way you save into your pension.

Withdrawing early

Another criticism raised by the Treasury committee is that the LISA withdrawal penalty has not been made clear enough to savers.

If money is withdrawn from a LISA before the age of 60 and is not used to buy a first home, the savings will be subject to a 25% penalty unless the saver is terminally ill.

It's important to note that the penalty is on the entire amount saved, so those who withdraw early could not only lose their government bonus, but a chunk of their savings.

For this reason, it's best to be certain you will use the LISA for one of its intended purposes before you commit to saving in one.

Talk to us about your savings strategy.

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