A recent report into household finances by the Treasury Committee was scathing in its assessment of the LISA – a product created in 2016 to help young people save for a first home or retirement.
The Committee specifically criticised the LISA for being unpopular, too complex, having “perverse incentives” and not complementing traditional pensions.
Tom Selby, senior analyst at AJ Bell, said: “The Government will cause uproar among younger voters if it caves in to pressure to scrap the Lifetime ISA.
“The product has been a hit with consumers so far and it would be ludicrous to pull the rug from under people now.
“Nobody is claiming the LISA is perfect, and policymakers need to look at ways to make the transfer process easier to navigate.
“The 25% exit penalty also remains a bone of contention and should be reduced so as not to excessively penalise savers.
“But ditching the LISA now would make little sense and risks leaving hundreds of thousands of people who have already invested stuck in limbo.”
AJ Bell said it was “bizarre” to claim the LISA was unpopular and said “across the market around 200,000 LISAs have been opened since April 2016 – and that’s with a limited number of providers offering the product.”
The firm also refuted the claim they were too complex, saying “the LISA is no more complicated than a pension.
“In fact, because the bonus is the same for everyone you could argue the structure is easier to explain.”
On the assertion that LISAs offer “perverse incentives” AJ Bell says: “This criticism seems to primarily relate to the fact withdrawals are tax-free from age 60.
“Because of this, some commentators argue people will spend their fund far too quickly and face penury in retirement.
“Such concerns are out of step in a world of pension freedoms.”
And the company also said the LISA can complement traditional pensions by allowing them “more time to grow.”