As part of the government’s response to the Treasury Committee’s report into household finances, it said there are over 190,000 Lifetime ISA accounts, with over £170m being paid out in bonus payments. See YourMoney’s Lifetime ISA guide for more information on the scheme.

“These numbers – which are likely to increase – demonstrate that people welcome the flexibility of the Lifetime ISA to save. This is in keeping with the government’s desire to offer people greater choice and freedom in how they save,” the government stated.

It continued: “The government remains committed to supporting savers of all income levels and at all stages of life for a range of aims, such as saving towards the purchase of a first home, for a rainy day, or for retirement. The Lifetime ISA forms a key part of this support and the government is encouraged that many savers are participating and benefitting from the bonus which the government pays out to support the next generation in the habit of saving.”

The response comes as the influential Treasury Committee called for the ‘perverse and complex’ Lifetime ISA to be scrapped, just a year after its launch.

MPs also criticised the government for not being clear enough about the 25% exit penalty, which would apply to the bonus as well as the capital, meaning people withdrawing money early would lose more than they put into the scheme.

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In response, the government said it had worked closely with the financial regulator, the FCA as well as Lifetime ISA providers to ensure customers are aware of the implications in withdrawing money early.

‘Scrapping Lifetime ISA would have been a retrograde step’

Nici Audhlam-Gardiner, managing director of Lifetime ISAs at OneFamily, said: “The Lifetime ISA is proving increasingly popular with consumers saving for a first home or retirement as awareness grows. It offers savers excellent benefits, which are unique to this product.

“The Lifetime ISA has already paid out more in bonuses than its inferior predecessor the Help to Buy ISA and we know from our customers that they’re delighted with the monthly top-up from the government bonus and the prospect of the long-term growth of their investments.”

Tom Selby, senior analyst at AJ Bell, said: “The government is right to knock back calls for the Lifetime ISA to be scrapped altogether. Criticisms of the new savings vehicle didn’t appear to be based on any hard evidence. In fact, the LISA has proven popular among younger savers and ditching it now – just as it gains traction in the UK – would have been a retrograde step.”