Mini Question Time: Is a LISA still worth it for first time buyers & retirement, now it’s being replaced?

Martin Lewis answers a listener's question about Lifetime ISAs (LISAs), explaining how they were affected by the Chancellor's Budget announcements. He breaks down how LISAs work, whether the government announcement affects first-time buyers or savers, and the key rules, bonuses, and withdrawal penalties to be aware of. He also looks at whether a LISA can be used as an alternative to a pension, how the government bonus works, and the key advantages and drawbacks of saving for retirement this way.

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

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• 1:47Martin Lewis?

  It has to be open a year before you can get the bonus as a first time buyer. If you haven't got a lifetime ISA and you haven't bought a first time property, I would put at least one pound in a lifetime ISA.

• 1:58Speaker 03

  Crucially, I'm available, which is my main ability.

• 2:01Martin Lewis?

  So this is the new rule, and it is now in place today. In fact, it was in place last Thursday. If you're looking for it for retirement savings, you probably want to look at investment.

• 2:12Martin Lewis?

  Hello and welcome to this special mini edition of Question Time. Yes, it's a one where you get to ask me your questions on anything and everything, open brackets within reason, close brackets. And it is a mini post-budget question time. The big picture is just one question. Is a lifetime ISA still worth it? Play the theme tune.

• 2:50Martin Lewis?

  Hello, welcome to this special mini edition of Question Time. Not too big a preamble here, I'm joined by PPS himself, podcast producer Simon. How are you, Simon?

• 2:58Speaker 03

  I'm excellent. I'm delighted to be speaking to you, particularly the week of Budget Week, a big old week for you.

• 3:03Martin Lewis?

  It has been a very big week, yeah. People will know I was in early in number 11 Downing Street on the Wednesday morning of the Budget. I was had a briefing from the Chancellor 10 minutes after they had announced that they were getting rid of gas standing charges at some point in 2027. So I had that and then I went back to the office, did my prep, watched the Budget, was on social media, did about 20 interviews that day. And then with my team, trying to work through all the detail to understand exactly what it meant. Then the next morning, I had to go to Derby to Rolls Royce, interviewed the Chancellor there, while hastily writing my graphics for my telly show, came back, did the TV show last night, been through so many subjects. And I have to say, I mean, I'm absolutely shattered. We're recording this on the Friday, the podcast, this is going out on Monday.

• 3:48Martin Lewis?

  I'm shattered, but you know, my whole thing, my whole passion is trying to explain complex financial issues to people. And when you have a budget, there are so many changes and new things, whether it's on cash ISAs or the energy payment or the new state pension tax allowance, which I'll be talking about in the podcast on Thursday, exactly how that works, that actually there is a real friction to it. And how are you, Simon?

• 4:09Speaker 03

  Well, I'm excellent and crucially, I'm available, which is my main ability.

• 4:14Martin Lewis?

  Yeah, exactly. So I'm not the best producer, but he's available. No, not a total lie. It's wonderful to have you here. Too many Matts. We normally have Matt Burnham on this podcast. And last week, we were doing the Budget Podcast with Matt Chorley. It's time to have a Simon.

• 4:27Speaker 03

  Yeah, exactly.

• 4:27Martin Lewis?

  That's my slogan.

• 4:28Speaker 03

  Yeah, yeah.

• 4:29Martin Lewis?

  Not enough Simons, too many Matts. I think that could be a slogan for everybody.

• 4:31Speaker 03

  That's what it says on my CV.

• 4:35Martin Lewis?

  Now, we were talking about the Budget and that brings us to why we're doing this. Because there was a big change to the lifetime ISA in the Budget. Effectively, the penalty that you have to pay if you use a LISA for an unauthorized withdrawal. So that's when you take the money out not to buy a qualifying house, which is a house with as a property worth under £450,000, or not once you're aged 60, because it was also used for retirement funds, has changed. So I want to come to that later. I want to also explain to you exactly what the lifetime ISA is. And we want to talk through too about the new first time buyer ISA that's going to be launched in April 2029 and what that means for the lifetime ISA.

• 5:17Martin Lewis?

  But this is Question Time, so you should probably ask me a question.

• 5:22Speaker 03

  Yeah, well, we got a question lined up from James. He wants to know about using a LISA after house purchase. His question is, Dear Martin, Dear Matt, Dear Isabel, last time I asked this question.

• 5:33Martin Lewis?

  Sorry, and Dear Simon, Dear Simon.

• 5:35Speaker 03

  Well, yeah.

• 5:36Martin Lewis?

  I've added that.

• 5:36Speaker 03

  I think it was implied. Yeah, yeah. He says, last time I asked this question, it was hypothetical, but I'm now delighted to say my partner and I have found a property we want to buy.

• 5:46Martin Lewis?

  Yay.

• 5:47Speaker 03

  Please can I ask if it's possible to continue using and getting government bonuses on a lifetime ISA for retirement savings even after it has been partially used for a first time property purchase? Thank you for all your help over the years, which has helped us get to our first home. Kind regards, James.

• 6:05Martin Lewis?

  Well, James, I'm delighted to hear that and congratulations on getting to your first home. The very short answer is yes. The lifetime ISA is dual purpose. So even though you will have had the bonus as a first time buyer, you can continue to put money in and get a bonus on that money that you can access once you are aged 60. So the very straight answer is yes. We need to get into the fact of whether that is worth you doing. And it's worth understanding that as a vehicle for retirement savings, the lifetime ISA has not been particularly successful. Almost all major high street banks don't offer the lifetime ISA, and it's for the reason that they are scared of being done for misselling by people using it for retirement savings when it isn't the best option for them. And that's been one of the great problems with the lifetime ISA

• 6:50Martin Lewis?

  and why not so many places offer it and why it's being replaced with the first time buyer ISA. But that doesn't mean it isn't worth it for everyone. So effectively, what you're getting with a lifetime ISA is a 25% boost on what you put in. If you compare that to saving inside a pension. Well, first of all, if you are an employee and you're doing auto enrolment, which means that your employer up to a certain limit has to provide matching-ish contributions. The minimum amount is if you contribute 5%, they must put in a minimum of 3%. Well, then a pension is just smacking the bottom off a lifetime ISA and you want to prioritise putting your money into a pension. Even if you're not an employee,

• 7:33Martin Lewis?

  because when you save in a pension, and there are lots of different ways, so let's just talk it simply as a way of explaining it rather than going to the technicals. You're effectively putting your money in your pension from pre-tax income. So what do I mean by that? Well, this is the way to think of it conceptually, and this works whether you're doing it auto enrolment or you're just doing a pension by yourself that you set up yourself. Everybody gets this. So auto enrolment get the benefit from the employer on top of what I'm about to talk about. If you think about when you're paid £100, you have two choices. You can take that £100 and you can put it into your pension. Or you can have that money in your pay packet if you like and go home and spend it. But to have that money in your pay packet as a basic rate taxpayer,

• 8:17Martin Lewis?

  £20 tax is taken off, so you'd only get 80 quid. As a higher rate taxpayer, £40 tax is taken off, so you'd only get 60 quid. As a top rate taxpayer, £45 is taken off, so you'd only get 55 quid. So your actual choice is £100 going into your pension or take home 80 or 60 or 55 quid. That's pensions' big superpower. So how does that equate to the 25% boost on a pension? Well, we've already said on auto enrolment, the pension's easily going to win. And generally, if you're a higher rate or top rate taxpayer, well, a pension is going to win again. Where a lifetime ISA becomes competitive is if you are a basic rate person

• 9:00Martin Lewis?

  who's not getting auto enrolment, either because you've used it up or because you're self-employed. In that case, there are pros and cons to pensions versus lifetime ISAs. A pension advantage is money in a pension doesn't count towards benefits. So if you have too much in savings, yeah, over £6,000, say in the universal credit, you start to lose benefit entitlement. Money in a pension doesn't count, money in a lifetime ISA does count. So that can reduce your benefits entitlement. Another benefit is that you can take pension money earlier. Currently, you can take money from a private pension at age 55. From April 2028, that's moving up to age 57,

• 9:41Martin Lewis?

  you can only take the money at age 60 from a lifetime ISA. There are also much stricter limits on what you can put in a lifetime ISA. It's only £4,000 a year, whereas in a pension, it can be up to £60,000 a year as long as you're earning more than that. The lifetime ISA advantage though, is that the money is accessible. You would have to pay a penalty, you'd have to pay a 6.25 effective penalty of what you put in to get the money out before age 60, but you can do so. Whereas in a pension, it's totally locked away. So I've given you a very long answer to your question. Can you use it for retirement savings? Yes. But the real question is, should you? And hopefully those pros and cons will help. So we've dealt with the retirement element, Simon. We have other stuff to talk about with LISAs though, don't we?

• 10:25Speaker 03

  Yes, we do.

• 10:30Speaker 03

  So before we get into the changes that happen in the budget, why don't you sort of run through the basics of how LISA works for people who are kind of at an earlier stage in the house buying process than James?

• 10:40Martin Lewis?

  The lifetime ISA is a tax-free savings account that you can save up to £4,000 a year in and the state will give you a 25% bonus that you can use as a first-time buyer on a house that has a price of less than £450,000. Now, the fact a lifetime ISA, ISA stands for Individual Savings Accounts, means it's just for you. You can have it just for you, your partner can have one as well, and if you're both first-time buyers, you can both get the bonus individually and put them together towards your first property. People often say, does that mean we can buy property up to £900,000? No. The property limit is £450,000. If two of you are buying it, you're sort of individual, you still have the £450,000 limit on the total amount that you can have in a property.

• 11:24Martin Lewis?

  Worth noting too, that if you're a first-time buyer buying with someone who isn't a first-time buyer, you can still get the bonus because it is an individual product. So as you can see, the fact you can get up to £1,000 a year bonus, if you put £4,000 in, 25% on top is £1,000 a year, is really useful and lucrative. And you can open a savings lifetime ISA or a shares lifetime ISA. Now, if you're a first-time buyer and you're looking to buy in the next few years, you probably want to stay safe and stick with savings because it means there isn't a risk that the market volatility means you get back less than you put in due to that. If you're looking for it for retirement savings, you probably want to look at investment because you're putting money away for longer than five years. And if you're putting it away for longer than five years, then investing in a broad

• 12:07Martin Lewis?

  spread of investments, you know, something like a global tracker is what they often talk about, that will tend to outperform savings over the longer period for your retirement. Now to some of the issues with the lifetime ISA. The first thing to note is it has to be open a year before you can get the bonus as a first-time buyer, which is why I would strongly suggest anyone aged 18 to 39, and you have to be aged 18 to 39 to open a lifetime ISA. You can keep it open once you're aged 40 or beyond, but it's when you open it that counts. If you haven't got a lifetime ISA and you haven't bought a first-time property, I would put at least £1 in a lifetime ISA for the simple reason, well, it gets the clock ticking, tick-tock, tick-tock, tick-tock, tick-tock.

• 12:51Martin Lewis?

  And therefore, once you put that money in, that rule of you have to have the lifetime ISA open for a year is gone because even if you actually start putting real money into use to as a first property in two years' time, you could access the bonus straight away, effectively, because you've had the ISA open for more than a year. The other reason, if I was aged 18 to 39 and I put a quid in, even if I owned a home already, is because of that retirement savings issue. Now, it's worth noting, as we're going to go on to in a minute, when the first-time buyer ISA comes in, you will no longer be able to open a lifetime ISA, and that will be April 2029. Even though the retirement facility on the lifetime ISA isn't great for most people, it's going to disappear.

• 13:34Martin Lewis?

  Your option to get one will disappear if you haven't opened a lifetime ISA by April 2029. So I would suggest you put £1 in it, just in case, you know, in 2037, you think, ooh, I wish I'd have a lifetime ISA, that would actually be better for me at the moment in the way that the regime's changed, because the lifetime ISA will still be usable if you open it before it closes. So basically, it's an insurance policy in case you're going to need it for retirement savings. That's another reason I would just, if I had the ability to open a lifetime ISA, I would be opening one now. So that's the one-year rule. So let's get on to the big change issue in the budget where it has improved, and this is all about the lifetime ISA penalty.

• 14:15Martin Lewis?

  Until last Thursday, and it actually changed last Thursday, the rules were this: if you don't use a lifetime ISA for one of two reasons, you pay a 25% penalty. The two reasons are buying the qualifying the first-time property, qualifying means a residential property that costs £450,000 or less, or you take it out once you're aged 60 or older. The penalty is 25%, but you need to remember you've got the bonus of 25% when you put the money in. And the way the calculation works is you actually have a net loss of 6.25%.

• 14:58Martin Lewis?

  So in other words, if you have to pay the penalty for every £1,000 you put in, you get £937.50 back. It is a 6.25% fine to the state. Now, where I have really campaigned against that, I got the idea they didn't want people to jemmy the lifetime ISA and use it to get a bonus and use it to put money in if they weren't saving for retirement or saving for first-time property. The big issue that's frustrated me is when the lifetime ISA was set up, that property value limit was £450,000. That was 2017. Property prices have gone up, but the lifetime ISA threshold hasn't, which means we've seen many young people, especially in the south-east of England, save in a lifetime ISA for a

• 15:43Martin Lewis?

  first property exactly as the state wanted them to. But then, prices have gone up and they've been priced out, then having to buy a property over £450,000, and they've been having to pay the state a fine for taking their own money out of a lifetime ISA, a fine of 6.25%, even though they're using the money to buy a first-time property. Now, I asked Jeremy Hunt to change that. He said he would look at it, but didn't because he said, well, we ran out of time on it. Rachel Reeves said she'd look at it and didn't. To be fair to John Healy, last week, he looked at it and he has changed it. So this is the new rule, and it is now in place today. In fact, it was in place last Thursday.

• 16:22Martin Lewis?

  If you use your lifetime ISA money for a deposit on a house that costs over £450,000, the penalty is reduced from 25% to 20%. And what that means in practice is you get back the money you put in plus interest, but you don't get the bonus. So you don't get the 25% bonus on top, but you get effectively the same money as you would have got if you'd just put it in a normal cash ISA, because you get back what you put in plus interest on top. And that means for those people who are definitely going to buy a house, I used to have the caveat to say, those people who are definitely buying a house under £450,000, I can now say, for those who are definitely buying a house and aren't sure whether it'll

• 17:07Martin Lewis?

  be under £450,000 or over, now safely put that money in a lifetime ISA. Because in the worst-case scenario, you would be no worse off in a lifetime ISA than you would be saving into a cash ISA. That is a real change. I've already had people get in touch with me to say that, you know, they're so happy because they were wondering what they were going to do and they were holding off from buying it, and now they're not going to have to pay the penalty. I should say, if you've already taken the bullet, what's it called, Simon?

• 17:35Speaker 03

  Taken the plunge.

• 17:37Martin Lewis?

  No, no, bitten the bullet.

• 17:39Speaker 03

  Ah, yes.

• 17:40Martin Lewis?

  Yes. If you've already bitten the bullet and you've already bought a house above £450,000 and paid the penalty, I'm afraid you can't get that money back. Because the way that this is activated is just like the normal ISA bonus, is it's your convincing solicitor who activates you getting the bonus on it. So that's the big budget change, and that's how lifetime ISAs work.

• 18:04Speaker 03

  Okay, so tell us about this new first-time buyer ISA, and which one of them will be better?

• 18:09Martin Lewis?

  Right, so we know a lot more detail about this new first-time buyer ISA since the budget. It's going to launch in April 2029 for those aged 18 plus, so there's no age cap. You know, you could be 74, as long as you're a first-time buyer. You're able to put £4,000 a year in this, and the bonus is 25%, so in simple sum, it's still £1,000 a year. But the way the bonus works is different here. So with the lifetime ISA, the 25% bonus is paid each month, and you can then get interest on top of it, and you can get up to £1,000 a year till you're aged 50. So in a lifetime ISA, the maximum bonus is 32 grand if you started at 18 and you did it to 50. Why you would do that when it's for buying, if you're using it for buying a first-time property, I don't know, but that's a technical thing.

• 18:52Martin Lewis?

  In the first-time buyer ISA, the new one from April 2029, you get the 25% paid on the total in your account at exchange, which includes interest. So basically, you're saving it, you get interest, and you get 25% on top of that with a maximum bonus of 20 grand. Now, that was actually a budget change, and it's something that my team and I put a submission in about this, as did other people. Because before the budget, what they were saying is if you put money in the first-time buyer ISA, you'd only get it on what you contributed. You wouldn't get it on the interest, which made it was worse than the lifetime ISA in effect, but they've changed that. The property price cap is £450,000 again. There is no withdrawal penalty, you just don't get a bonus. And that's because the bonus is only paid at exchange.

• 19:36Martin Lewis?

  So if you take your money out earlier, you can just take your money out, you'll get your interest, you'll get everything. There's no retirement savings element in this. Now, this is where it's going to get a little bit complicated, so strap in, everybody. The big question is what happens to the first-time buyer ISA predecessors once the first-time buyer ISA opens? And there are two predecessors. There's the lifetime ISA we've already talked about, and there's the Help to Buy ISA, which is the lifetime ISA's predecessor. And in a way, the first-time buyer ISA is much more similar to the Help to Buy ISA, except you get the money at exchange rather than to completion, which is an improvement, and different limits. So if you have a Help to Buy ISA, you are going to be able to transfer that into the new first-time buyer ISA.

• 20:19Martin Lewis?

  If you have a lifetime ISA, you won't be able to transfer it into the new first-time buyer ISA. But, this is the shocker, they're saying you will be able to get the first-time buyer bonus on both the lifetime ISA and the first-time buyer ISA. You'll be able to get the bonus on both of those, which means for people who are asking me, and I'm already getting these questions, should I wait for the first-time buyer ISA or put money in a lifetime ISA? Well, there's no harm, as long as you're definitely going to buy a property, putting money in the lifetime ISA now, because you will also be able to use the first-time ISA. Though I just want to be really plain on this because I know there is some confusion out there. You can have a first time buyer ISA and a lifetime ISA, or at least you will be able

• 21:04Martin Lewis?

  to, once we get to April 2029. You can get the bonus on both towards your first time property, but you are not allowed to contribute to both in the same tax year, which effectively means it's a maximum £1,000 of free cash from the state, if you like, per tax year. Still, the big advantage of the fact that you can get the bonus on both is it means you can start saving the lifetime ISA now if you're definitely going to buy a property and you don't have to worry about which is better or which is worse because you could start saving in the first time buyer ISA once we get to that point and you could utilise both. The only other thing to tell you about the first time buyer ISA is, just like the lifetime

• 21:44Martin Lewis?

  ISA, you will have to have it open for a year before you can get the bonus. So effectively that means if you're looking to buy a property before April 2030, the lifetime ISA is for you. We said this was a mini pod, Simon, I've gone long, haven't I? But I think, I think I've got everything in. And just to say, on Thursday, I'm doing a full ISA special and state pension tax allowance. Those are the two main subjects. So I'll be talking about the cash ISA changes, the new potential investment ISA starter scheme that they're talking about and exactly what that means. So if you've got any more questions, anything to do with ISAs, including on the lifetime

• 22:28Martin Lewis?

  ISA and the first time buyer ISA, send them to [email protected] and I hope to answer them. What did you think? Was it worth doing that one, Simon?

• 22:36Speaker 03

  No, I thought it was really good, actually. It was a good, quick guide after what's been a busy week.

• 22:41Martin Lewis?

  Indeed, and I hope people listening find it exactly the same. Thank you for listening, everyone. We'll be back in the normal run of things later this week with our normal Big Issues podcast that we do on Thursday and then a full question time, back with the curator of questions, Matthew Burnham. But as a good way to finish, you don't just want a PS, you want a PPS. So I want to thank podcast producer Simon for being available and being so brilliant too, Simon. Don't do yourself damn well.

• 23:05Speaker 03

  Hey, thank you very much. And I hope you go and have a lie down in a dark room now.

• 23:08Martin Lewis?

  That's exactly what I need. Cheers, mate.

• 24:01Speaker 04

  Sometimes we all need an extra helping hand, especially with a tricky business problem you've been putting off. Claude is an AI for just that. It's a collaborator that understands your entire workflow and thinks with you, not for you. And Claude isn't just for quick questions. Hand it a whole task like turning a folder or scattered notes into a report and it does the work and hands back something finished that you can open and edit. Claude can now draft a doc or deck right in front of you and Claude Design now lives right inside Claude. Describe the website or prototype you're picturing, attach your design system and it comes back in your own design language, ready to edit right on the canvas. It works with your files and the tools you already use, like Gmail and Slack.

• 24:45Speaker 04

  And whether you're debugging code at midnight, building a financial model or strategising your next business move, Claude extends your thinking to tackle the problems that matter. For problems worth solving, get started with Claude at claude.ai/solve. That's claude.ai/solve and check out Claude Pro, which includes access to all of the features mentioned in today's episode. Claude.ai/solve.

• 25:15Martin Lewis?

  Welcome to the Haunted Library. Join me, Colin Morgan, as I read Frankenstein by Mary Shelley.

• 25:25Martin Lewis?

  A story of science and ambition, loneliness and longing, and what it truly means to be human.

• 25:35Martin Lewis?

  Listen to the Haunted Library wherever you get your podcasts or find us on YouTube.