The government’s plan to scrap the Lifetime ISA (LISA) has prompted warnings from across the pensions and savings industry, amid concerns that many self-employed workers rely on the product as an alternative to a pension.

Budget documents released yesterday confirmed that the government will consult in early 2026 on replacing the LISA - introduced in 2017 and used both for first-time home purchases and long-term savings - with a new, simpler ISA aimed solely at helping first-time buyers.

The announcement follows other ISA reforms in the Budget, including cutting the cash ISA allowance for under-65s to £12,000.

Commenting on the plans, TISA CEO, Carol Knight said the government risked dismantling a product that has played a valuable dual role for younger and self-employed savers.

“This is a moment for sensible reform of the Lifetime ISA, not a rush to scrap it,” she warned.

“LISAs have helped a generation of first-time buyers save for a deposit and, crucially, given many - particularly the self-employed - a simple, engaging way to build retirement savings.

As the government consults on a new ISA for homebuyers, it must protect the strengths of the LISA and give clarity and fair treatment to existing savers.”

Indeed, the Treasury Committee found that using a LISA to save for retirement was working well for self-employed people, although changes were needed to ensure they are treated the same as other pension savings products, following an enquiry earlier this year.

Echoing this, other industry experts stressed that while the LISA has long been criticised for its complexity, it has also filled a gap for groups excluded from automatic enrolment.

Quilter tax and financial planning expert, Rachael Griffin, said the government was right to address flaws in the existing design but must avoid harming those who have used LISAs to build retirement provision.

“The Lifetime ISA has attempted to serve two distinct goals - saving for retirement and saving for a first home - but has failed to meet either effectively,” she argued, pointing to the long-standing issues with the 25 per cent early-withdrawal penalty and the frozen £450,000 property price cap.

“There will be question marks over how and if existing LISA holders will be affected, and the government will need to ensure they are not disadvantaged.”

AJ Bell head of markets, Dan Coatsworth, added that scrapping the LISA without a clear replacement for retirement savers, particularly the self-employed, risked widening the savings gap.

“The ISA system is too complicated, and the Lifetime ISA is one of the worst offenders,” he warned.

“But replacing it raises more questions than answers. It also presents a challenge for self-employed people who use it as a retirement savings vehicle.

"The government should be doing more to encourage this group to put money away for later life,” concluded Coatsworth.

Meanwhile, PA Consulting financial services expert, Jason Whyte, acknowledged the pensions industry was unlikely to mourn the loss of LISAs, given longstanding concerns that consumers may have diverted savings away from pensions and missed out on employer contributions.

However, he highlighted their popularity with savers and stressed the need for a workable alternative.

Looking ahead, WEALTH at work director, Jonathan Watts-Lay, said the priority should be clarity and simplicity.

“Anything that makes it easier to help people save for their future has to be a good thing,” he suggested, adding that he "looked forward" to seeing the details of the consultation.

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