The Treasury’s decision to phase out lifetime ISAs in favour of a product focused solely on first-time property buyers has raised concerns among Britain’s self-employed workers.
Announced in the November Budget, the Government confirmed that a “new, simpler” ISA will replace the existing lifetime ISA scheme.
Reports suggest the new product could launch in 2028.
Critics warn the move may leave many independent workers without a straightforward savings option that currently offers a 25 per cent Government bonus on contributions.
Lifetime ISAs were introduced in 2017 and have grown significantly in popularity.
The number of active accounts increased by around 45 per cent over the past two years to reach roughly 964,000.
Around 45 per cent of account holders are believed to use the savings product primarily to build retirement funds rather than to purchase property.
Concerns about the policy change came as retirement savings among Britain’s self-employed remain significantly lower than among employed workers.
The UK has an estimated 4.25 million self-employed people.
However, only one-in-five contributes to a pension scheme.
Millions risk losing a key retirement savings option under new ISA plans
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By comparison, automatic enrolment has pushed pension participation among employees to almost 90 per cent.
Data from Hargreaves Lansdown highlights the gap in accumulated retirement wealth.
The typical employed worker has pension savings of around £86,700.
Self-employed workers have average pension savings of approximately £26,500.
The company’s savings and resilience barometer suggests that only 36 per cent of self-employed households are on track for an adequate retirement income.
This compares with 46 per cent of households in traditional employment.
Industry figures have warned the proposed ISA changes could remove one of the few straightforward options available
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GETTYWithout workplace pension schemes or employer contributions, many independent workers rely on alternative savings products to prepare for retirement.
Rachel Vahey, head of public policy at AJ Bell, said: “By only focusing on helping those buying a house, the Government is leaving fewer options for those who might use a lifetime Isa to save for retirement.”
She added that while existing account holders will still be able to continue saving, “that doesn’t help the thousands of people who need a solution in the future”.
Maike Currie, Vice President of Personal Finance at PensionBee, criticised repeated changes to long-term savings products.
“Constant tinkering with savings products undermines confidence and discourages people from planning ahead.”
Alistair McQueen, head of retirement and savings at Aviva, warned: “Without auto-enrolment or employer contributions to fall back on, many self-employed workers risk reaching later life without the savings they’ll need.”
The Pensions Commission is expected to publish an interim report in the coming weeks that could include proposals aimed at addressing the savings gap among the self-employed.
Emilia Farr, a 40-year-old IT worker from London, has built up £76,000 in her lifetime ISA since 2017.
She said: “For me, opening one was a no-brainer.
For some savers, the proposed changes have introduced uncertainty about the future of their retirement planning
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“I treat it like a pension, and the Government bonus is a real incentive to save.
“If you’re employed, even if you do nothing, you have a pension but it’s very different for the self-employed.”
Laura Tilt, a 43-year-old dietician from Bristol, who has saved £40,000 in her account, expressed similar views.
She said: “I realised that no one was coming to save me and I really needed to get started.”
Both savers said they hope they will be able to continue using their accounts after the replacement scheme is introduced.