The government should allow people to open lifetime ISAs (LISAs) and receive bonuses on contributions until the age of 55, Hargreaves Lansdown has said.

As reported by our sister title, Money Age, the call from the financial services firm comes after its savings and resilience barometer found that under a quarter (23 per cent) of self-employed households are on track for a moderate retirement, compared to 46 per cent of employed households.

Moderate retirement income is defined by the Pensions and Lifetime Savings Association (PLSA) as someone who receives £23,300 per year, or a couple that receives £34,000. A moderate income covers all basic needs, with enough money for a foreign holiday, eating out and leisure activities.

Although self-employed people do save in other vehicles such as property and investments, pensions are less popular.

Self-employed people are also not covered by auto-enrolment so do not benefit from an employer pension contribution.

HL said that a LISA could help self-employed people paying basic rate tax as the 25 per cent works in a similar way as basic tax relief on a pension contribution, but there is no tax when taking the money out after the age of 60.

LISAs are currently only available to people aged under 40 and there is a 25 per cent penalty on withdrawals that are not for a first home, terminal illness or retirement.

HL has stated that expanding access to the LISA for households between the ages of 40 and 55 could include an extra 680,000 households with a self-employed worker who pays the basic rate of tax.

Furthermore, the reduction of the penalty could benefit 540,000 households under 40 with a self-employed worker who pays the basic rate of tax.

HL head of retirement analysis, Helen Morrissey, said: “LISAs could be of real benefit to members of this group who have savings to put aside long-term but don’t feel pensions are quite right for them.

"Savings of up to £4,000 per year attract a 25 per cent bonus so it works in a similar way to basic rate tax relief on a pension. If you don’t benefit from an employer pension contribution, then it’s a viable option.

"If money gets tight then you can access your LISA funds albeit subject to a 25 per cent penalty.

“Just 14.9 per cent of self-employed led households aged between 18 and 39 are on track to have sufficient savings that would provide them with a moderate standard of living upon retirement. This share is only slightly higher for those aged between 40 and 55 (21.9 per cent).

“We are calling on government to reform the LISA regime to boost the retirement prospects of the self-employed. We want to see people able to open LISAs and receive bonuses on contributions until the age of 55.

"We would also like to see the penalty on early withdrawals reduced to 20 per cent for self-employed people. This would enable them to save for the longer term knowing they don’t forfeit their own savings should they need to access the money.”

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