A government committee has recommended that the Lifetime ISA should be abolished, a little over a year since it was launched.

The Lifetime ISA was introduced in April 2017, and allows people aged 18 to 40 to open an account and benefit from a 25% government bonus on any savings towards a first home or retirement.

The Treasury committee reported that the Lifetime ISA has received criticism over "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".

Those responding to the committee's inquiry raised concerns that savers would opt for a Lifetime ISA rather than saving into a workplace pension, missing out on the employer contributions and tax reliefs these offer.

The committee also argued that the withdrawal penalty has not been made clear enough to savers.

If money is withdrawn from a Lifetime ISA before the age of 60 and is not used to buy a first home, the entire amount saved will be subject to a 25% penalty unless the saver is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

As a result, those who withdraw early could not only lose their government bonus, but a large chunk of their savings.

Steve Webb, director of policy at Royal London, said:

"The original worry was people would choose lifetime ISAs and opt out of the workplace pension, giving up employer contributions and tax relief and so on. In fact, it has been a bit of a flop."

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