Should I use a Stocks and Shares LISA to save for retirement?

At a glance

• The Lifetime ISA is designed to be used to help buy your first home or save for your retirement
• Nutmeg has helped more than 6,500 first-time buyers get onto the property ladder
• Members of UK Parliament have reviewed the savings vehicle and believe that it can still support retirement planning and act as a complementary product

What is the LISA today and who can have one?

The LISA is available to those aged 18 to 39 who reside in the UK or are crown servants. Contributions into a LISA – up to an annual allowance of £4,000 – benefit from a 25% government bonus, which is paid when you contribute.

There are two types of LISA. Stocks and shares LISAs invest in financial markets and provide tax-free returns, while cash LISAs are tax-free savings accounts. Nutmeg provides a stocks and shares LISA, but does not offer a cash LISA.

You can continue paying into a LISA until your 50th birthday. You can access the money in your LISA to buy your first home worth up to the value of £450,000, and for retirement purposes once you’re 60, as well as if you’re terminally ill. If you need to use it for reasons outside these criteria, you’ll have to pay a government withdrawal charge of 25%.

The LISA has proven an effective tool for Nutmeg customers looking to buy their first home. We currently have 58,000 LISA customers and have already helped more than 6,500 first-time buyers get onto the property ladder. As the LISA was launched in April 2017, nobody – Nutmeg customer or otherwise – is old enough yet to have used their LISA for retirement.

“We believe the Lifetime ISA offers clear benefits for both first-time buyers and those saving for retirement, but would benefit from some reform,” says Claire Exley, Head of Financial Advice and Guidance at Nutmeg.

LISA can be a good companion to a pension

The LISA has been reviewed by the Treasury Select Committee, which is made up of MPs. In a June 2025 report, the committee made the case for LISA reforms, citing confusion among some savers over the two purposes of the savings vehicle – buying a house, and saving for retirement. It questioned the suitability of the cash LISA for retirement saving.

“Cash LISAs may suit those saving for a first home but may not achieve the best outcome for those using it as a retirement savings product, as they are unable to invest in higher risk but potentially higher return products such as bonds and equities,” the committee said.

The report noted, however, that “stocks and shares Lifetime ISAs can be a useful complementary retirement saving vehicle for some people including the self-employed”.

At Nutmeg, we believe that pensions remain the best vehicle for retirement saving for most people. Employer contributions and tax relief are among the reasons why the majority of savers should consider a pension ahead of a LISA for the purpose of retirement planning.

But the LISA does have strengths that make it an excellent companion to a pension, while having both vehicles confers the benefits of having multiple tax wrappers for your retirement savings.

“While the LISA is not as effective as a retirement savings product compared to pensions, especially those with employer contributions, the LISA may offer benefits when used in conjunction with one or more of these pension products,” says Exley.

When the time comes to withdraw from a LISA, your withdrawal will not be subject to income tax. LISAs "can offer greater ad hoc flexibility for withdrawals than some pension counterparts", Exley says.

LISA customers can withdraw all of their savings tax-free once they reach the age of 60. In contrast, the first 25% of your pension can normally be withdrawn tax-free, with remaining withdrawals subject to income tax.

Under current rules, you can withdraw from your pension sooner than a LISA – at the age of 55, rising to 57 in 2028. You can also contribute more per year into a pension, up to an annual allowance of £60,000 or 100% of your annual earnings – whichever is lower – compared to a yearly allowance of £4,000 for a LISA up to the age of 50.

The volatility of self-employed workers’ incomes means that the withdrawal flexibility offered by the LISA – even with its withdrawal penalty – is "crucial", according to testimony by the Personal Investment Management and Financial Association in the TSC’s report.

While the TSC questioned whether the LISA is the best use of public money given the state of UK finances, it concluded that the available evidence indicates that retirement saving with a LISA is “working well for self-employed people”.

LISAs are helping Nutmeg customers onto the property ladder, but the cap should rise

Around one in six first-time buyers in the past year used a LISA when buying their first home, according to Pensions UK, the trade body formerly known as the Pensions and Lifetime Savings Association.

While the LISA has helped many of our customers get onto the property ladder, the state of the UK housing market means that some savers may struggle to use it to buy a home without incurring a penalty.

The average house price in the UK has increased by more than 30% since the LISA was introduced in April 2017, according to the Land Registry. Yet the £450,000 cap has not been lifted to match this growth.

Rising house prices have also triggered an increase in the average age of a first-time buyer to 34, Exley says, which means the types of property people are buying for the first home have changed significantly. More people are looking for homes for a family, after renting flats as an individual or couple.

While Nutmeg continues to help many people buy their first home, there’s a case for lifting the cap. “Not increasing the cap to reflect increasing property prices and changing demographics of first-time buyers is at odds with the objective of the LISA to facilitate home ownership,” Exley says.

Risk warning

As with all investing, your capital is at risk. The value of your portfolio with Nutmeg can go down as well as up and you may get back less than you invest.

Tax rules vary by individual status and may change. Nutmeg does not provide tax advice. For personalised advice tailored to your specific situation please consult with a qualified tax adviser or financial planner. With LISAs, if you need to withdraw the money before you’re 60, and it’s not for a qualifying purchase of a first home, you may pay a 25% government withdrawal charge.

If you choose to opt out of your workplace pension to pay into a Lifetime ISA, you may lose the benefits of the employer-matched contributions. Your current and future entitlement to means-tested benefits may also be affected. 

We do not provide investment advice in this article. Always do your own research.