Plum Under Fire: 45,000 LISA Savers Slammed with Repeat Penalties

New Freedom of Information (FOI) data, obtained by smart money app Plum, reveals that approximately 45,000 Lifetime ISA (LISA) savers incurred unauthorised withdrawal penalties more than once during the 2024–25 tax year. This figure represents about one-third of the total 129,200 individuals penalised in that period. The revelation carries particular significance as HMRC had previously informed the Treasury Select Committee that it could not produce this specific statistic within the requested timeframe during the committee’s recent inquiry into the LISA product.

Rajan Lakhani, a personal finance expert at Plum, highlighted the discrepancy, noting that the exact data requested by a parliamentary committee, which MPs were told could not be produced in time, was subsequently surfaced through a private FOI request in just a few weeks. The financial impact on these multiple offenders is substantial; the average cumulative penalty for those charged more than once was £760. Furthermore, some 3,970 savers faced combined fines exceeding £2,000, and in the most severe cases, among the top 25 multiple-penalty instances, the average combined charges per person surpassed £11,000.

Plum’s data provides a detailed breakdown of these penalties. The largest group, comprising 33,530 savers, faced cumulative losses ranging from zero to £999. Alarmingly, 60 individuals each absorbed more than £8,000 in penalties within a single tax year.

The mechanics of the LISA withdrawal charge dictate a 25% penalty on the total bonus-inclusive withdrawal amount. This structure can lead to savers recovering less than their original deposit. For instance, a saver contributing £1,000 receives a 25% government bonus, bringing their pot to £1,250. However, a full cash withdrawal then incurs a penalty of £312.50, leaving the saver with only £937.50. This structural quirk, where the penalty reclaims both the bonus and a portion of the saver’s capital, has consistently drawn criticism from consumer groups and Members of Parliament.

An additional constraint on the LISA's effectiveness is its property price cap, which remains frozen at £450,000 for nine years. This limit effectively renders the LISA inaccessible for property purchases in high-value areas like London and the South East, where average transaction values have long exceeded this threshold. Plum advocates for the government to raise this cap to approximately £600,000, aligning it with current price growth, and to increase the annual subscription limit. The company also lobbies for a reduction in the withdrawal penalty to 20%, which would prevent savers from receiving less than their initial deposit.

In terms of regulatory and policy developments, the government has indicated its intention to replace the Lifetime ISA with a new First-Time Buyer ISA. This proposed product is expected to remove the retirement-savings purpose, eliminate cash withdrawal penalties, and delay the government bonus until the point of purchase. A trade-off, however, is that savers would not accrue interest or investment growth on the bonus during the accumulation phase. The annual savings limits and property price cap for this new product have not yet been announced and may be revealed in an upcoming Budget.

This episode highlights a recurring tension in UK retail savings policy: products designed to encourage long-term financial behaviour often inadvertently penalise households facing short-term liquidity pressures, precisely the first-time buyers the LISA was intended to assist. The Treasury Committee’s report, published in June, had specifically pointed out the information gap regarding repeat penalties. The fact that this gap was subsequently closed by a private FOI request rather than proactive disclosure by HMRC is likely to intensify parliamentary scrutiny of the new product's design.