Labour is preparing to remove the option to save for retirement from its planned replacement for the Lifetime Isa, narrowing the product’s focus exclusively to first-time buyers. The new savings scheme, expected to launch in April 2028, will no longer provide the government’s 25 per cent bonus on a monthly basis. Instead, the bonus will be paid only at the point of purchasing a first home, limiting the opportunity for savers to benefit from interest or investment growth over time.
Under current rules, savers can continue to open and use a Lifetime Isa until the new product is introduced. The existing scheme offers a tax-free bonus of 25 per cent on savings of up to £4,000 a year and allows withdrawals either to buy a first home valued up to £450,000 or after the age of 60 for retirement. Withdrawals for other purposes trigger a penalty that recovers the bonus and an additional proportion of the saver’s original capital.
The Treasury has said it is consulting on a “new and improved product” designed specifically to support first-time buyers and remove penalties for withdrawals. While the new scheme will not include a withdrawal charge, it remains unclear whether the current property price cap will be adjusted. Plans for reform were outlined in the November Budget, where Chancellor Rachel Reeves promised a simpler alternative following criticism from the Treasury Select Committee, which described the Lifetime Isa penalty as a “perverse incentive”.
++ Pentagon journalists walk out in protest over new press rules
Industry figures have raised concerns that the changes could reduce the appeal of the product. Financial advisers warned that restricting investment growth may discourage savers and undermine the core purpose of an Isa as a tax-efficient savings vehicle. Others noted that combining support for home ownership and retirement has long created complexity, particularly given property price pressures in parts of England. The Treasury maintains that reform is necessary to better reflect changing circumstances and improve support for first-time buyers.
