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2 years left to open a lifetime Isa – should you use one for retirement?
It will be replaced with a first-time-buyer-only savings product in April 2028
Holly covers personal finance topics from credit cards to wills. She enjoys turning complex money matters into clear, practical advice.
The lifetime Isa (Lisa) offers a 25% government bonus on savings for your first home or retirement, worth up to £1,000 a year – but the countdown is on if you’re planning to use one for retirement.
From April 2028 you will no longer be able to open a Lisa, as it’s being replaced with a new savings product for first-time buyers only.
Here, Which? explains what’s happening to the Lisa and explores whether it’s worth opening one for retirement saving.
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How long you have to open a Lisa
The Lisa was launched in 2017 to help people save for retirement or to buy their first home. The generous government bonus has proved a hit with savers – the number of open accounts nearly doubled from 706,000 in 2020-21 to 1,338,000 in 2023-24, according to HMRC figures published last year.
But it will be replaced with a new type of Isa for first-time buyers in April 2028, under changes announced in the Autumn Budget.
HMRC has confirmed that it will be possible to open a Lisa until the new Isa becomes available and you'll be able to continue saving under the current rules indefinitely.
- Find out more: best lifetime Isas 2026
The government will consult on a first-time-buyer-only Isa which would provide a bonus when savers access their money to buy a house. This is similar to the Help to Buy Isa, which predated the Lisa and closed to new applicants in 2019.
Paying the bonus when savers access their money would remove the need for a withdrawal penalty and give savers more flexibility.
However, Rachel Vahey, head of public policy at AJ Bell, points out that while the withdrawal charge has caused problems, savers will miss out additional compound interest: ‘Potential homeowners lose out on the investment growth earned on the bonus during the years they save for their first house. That might mean having less money to buy the home of their dreams.’
How a Lisa works for retirement
You can deposit up to £4,000 a year in a Lisa and receive a 25% bonus from the government – worth up to £1,000. You need to be aged between 18 and 39 to open one, but can continue saving into it until you turn 50.
You can choose to save cash or invest through a stocks and shares Isa. Like other types of Isas, you won’t pay any tax on the interest you earn, and the money saved contributes to your overall Isa limit.
If you use a Lisa to save for retirement, you won’t be able to withdraw the money until you turn 60. And if you withdraw the money for anything other than retirement or purchasing your first home, you have to pay a 25% withdrawal penalty – which can leave you with less money than you originally put in.
It’s unclear exactly how many people use their Lisa to save for retirement: HMRC figures published last year stated that 45% of holders used their account for retirement savings, but these figures were recently withdrawn due to methodological issues.
- Find out more: what is an Isa?
Lisa vs pension: which is better?
Eight in 10 employees in the UK contribute to an employer-sponsored pension as of 2024-25, according the Department for Work and Pension's Family Resources Survey – and if you have access to a workplace pension, this is usually a better option than a Lisa.
This is because employer contributions combined with pension tax relief are worth more than the 25% Lisa bonus.
For example, if you earn £34,000 and are automatically enrolled in a workplace direct contribution scheme.
If you pay the minimum 5% into your workplace pension, you'll contribute £1,110.40 a year and receive £277.60 in tax relief from the government, plus £832.80 from your employer (assuming they contribute the minimum 3%), taking your total annual pension savings to £2,220.80.
The gains could be even bigger if you pay income tax at a higher rate, or your employer contributes more than the minimum.
If you saved £1,110.40 in a Lisa you’d receive an extra £277.60 thanks to the government bonus, taking the total saved to £1,388.
- Find out more: what is a defined contribution pension?
When to consider a Lisa
Auto-enrolment has significantly increased the amount of people who pay into a pension: for employees, pension-scheme participation has increased from 60% in 2014-15 to 80% in 2024-25, according to the DWP’s most recent figures.
But if you don’t have access to a workplace scheme, for example if you’re self-employed or not working, a Lisa can be a useful alternative.
If you’re a basic-rate taxpayer, the 25% bonus is equivalent to the money you’d receive in the form of pension tax relief. And when it comes to accessing your money, you won’t be taxed on withdrawals (you can take 25% of your pension tax free and the rest will be taxed like income).
If you're a higher or additional rate taxpayer (or intermediate, higher, advanced or top rate in Scotland), pension tax relief will be worth more than the government Lisa bonus.
Unlike a pension, you can access your savings early if needed. However, a 25% withdrawal penalty applies if you take money out before age 60 for anything other than a first home, meaning you could get back less than you paid in.
Ultimately it's not a binary choice and you can save in a Lisa alongside your pension (this is a good option if you've reached your annual allowance for pension contributions).
- Find out more: Isas vs pensions
Saving for retirement can be harder if you’re self-employed, as you won’t be automatically enrolled into a scheme and miss out on employer contributions.
Only one in five self-employed people pay into a pension as of 2024-25, according to the DWP’s Family Resources Survey, and many have voiced concern that Lisa changes will leave the self-employed with even fewer options for retirement saving.
Vahey says a plan is needed to help the self-employed save for retirement: '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. Self-employed individuals and others without access to a workplace pension can keep saving if they already have a lifetime Isa. But that doesn’t help the thousands of people who need a solution in the future.’
- Find out more: self-employed three times more likely not to have a pension
How to start saving for retirement
Getting started with retirement saving can feel daunting, but taking a few simple steps early on can make a big difference to how much you build up over time. Here’s what to consider.
1. Understand your options
If you’re employed, 22 or over and earn at least £10,000, you’ll be automatically enrolled into your workplace pension. While you have the option to opt-out, it’s best not to if you can afford to, as employer contributions and tax relief will significantly boost your savings.
If you’re self-employed, consider opening a personal pension or self-invested personal pension (Sipp), or Lisa.
- Find out more: pensions for the self-employed
2. Consider how much you can save
If you get a pay rise or bonus, consider paying more into your pension. Increasing your contributions by a small amount can make a big difference over time, thanks to compound interest.
According to analysis by Standard Life, if someone age 22 earning £25,000 and paying the minimum into their pension increased their contributions by £19.50 a month, their pot would be worth an extra £18,000 by they time they turn 68.
- Find out more: how to boost your pension
3. Keep track of your pensions
Lots of people end up with multiple pension pots as they move between jobs. Keep track of the details of your pension scheme for all your employers, and make sure your details are up to date with your pension providers.
If you’ve lost track of a pension pot, contact your employer or use a pension-tracing service.
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