Savers lost £75.3m in Lifetime ISA unauthorised withdrawal charges in the 2023/24 tax year, 30% up on the previous year, according to Quilter analysis of HMRC data.

“This comes as a result of almost 100,000 people needing to rip cash out of their savings to help make ends meet,” says Quilter tax and financial planning expert Rachael Griffin.

She adds: “These concerning figures illustrate just how many people continue to face a difficult battle over the need to save for the future versus the need to pay their bills, and higher costs have clearly won as so many have had to stomach the 25% charge to gain access to their money.

“In what remains a financially challenging time for many, we should not be overly penalising people for using their hard-earned savings.

“Yet, the punitive 25% penalty means that those who have done the right thing by saving are penalised if they need to access their cash.”

The government-backed Lifetime ISA allows consumers to save up to £4,000 a year to buy their first home, or put aside cash for later in life. Savers must be aged between 18 and 40.

The government adds a 25% bonus to savings, up to a maximum of £1,000 per year.

But withdrawals are charged at 25% if consumers take out cash unless it is to buy a home, are over 60, or terminally ill.

Giffin points out: “The figures reiterate the desperate need for reform of the Lifetime ISA.

“To simplify the current offering and make it fairer for savers who have no choice but to dip into their savings, the rules should at the very least be adjusted to only take away the bonus rather than raid people’s savings as well.

“This could easily be achieved by dropping the 25% penalty to 20%, essentially ridding the product of an exit charge levied on people’s actual savings and could encourage more people to save.”

HMRC’s annual savings data to September shows that 56,900 Lifetime ISA savers took cash from their accounts to buy a first-time property in the period, up 1,150 on the year before.

The average withdrawal for a house purchase was £14,927, up £1,054 from 12 months before.