At last, super Isa has arrived

First, unusually for me, I want to congratulate the coalition and chancellor George Osborne for doing something that should have been done a decade ago – making tax-free saving a huge potential part of anyone’s financial plan with no silly cash-versus-equities restrictions any more.

There is no excuse now for virtually anyone – at least anyone who can – not to build up a tax-free portfolio of investments that could be used for any purpose.

Sceptics may say it is only a modest increase on previous limits and just gets rid of a few petty restrictions, but it is more than that. It is a terrific boost for all savers and investors, and the new limits are reasonably generous. Will many average couples want to invest more than £30,000 a year? I doubt it.

Isas have long been a part of financial planning and wise advisers have steadily moved clients’ funds into Isas and other tax-free environments over the years. I have long called for a huge increase in Isa limits and now it has come (as of 1 July), it is like an early Christmas for the savings sector.

It is a great opportunity for advisers to revisit every client and review their investments to shift more assets into a tax-free environment. It also makes Isas a realistic pension planning alternative for nearly everyone, especially those concerned about tying up their money in a pension for a very long period.

But before you and I get carried away, there is a price to pay and there will be nervousness in some quarters. Fund managers may be concerned that while the new limits are far more generous, the ability to easily shift equity Isas into cash ones may not be so welcome.

Could nervous investors suddenly cash in their equity Isas at the first sign of trouble and switch into cash? Possibly. It is worth bearing in mind that the cash Isa annual saving limit has risen from £5,760 to £15,000 and the restriction on moving from equity Isa to cash Isa has been removed. Large and sudden outflows from equity funds may not be good news.

There is no excuse now for virtually anyone not to build up a tax-free portfolio of investments

Other critics will say that for some savers it will make very little real difference. Modest or low earners probably need meaningful tax bonuses on top to encourage them to save. For those at the wealthier end these changes are a welcome bonus but may not make any real difference. For those in the middle they are very helpful.

One spin-off I expect to see is the emergence of more fully featured Isas, perhaps a hybrid Isa (a mixed cash and equity Isa from some providers) offering clients the ability to balance equity and cash Isas easily or maybe a mortgage Isa or a pension Isa. All of these are now realistic propositions.

I expect to the emergence of more fully featured Isas, perhaps a hybrid Isa balancing equity and cash Isas

Of course, an Isa is not an end in itself, just a means to an end, and investing lots of money in an Isa will mean increased risks for clients who may become daunted by having large portfolios to look after. Many could and should turn to financial advisers for advice and this may spur demand for investment advice. It is a realistic prospect now that we will see significant numbers of people amassing tax-free portfolios of £100,000, £200,000 or more within a few years.

All of this money heading the way of Isas may also be too tempting to a future chancellor who could consider a tax raid on Isa to raise more money for a hard-up government. Inevitably too, the rogues will be out to get their hands on Isa cash as sure as night follows day.

But for now, it is a promising outlook and I hope fund managers and advisers will grab the opportunities.

Fund managers will need to think a little differently, though. Many still remain obsessed with high-risk, high-performance funds when what most people probably want is performance a little better than cash, and long-term growth and stability in return for the extra risk. This is not an argument per se for passive funds, but the Nisa is the opportunity the fund management sector needs to create everyday funds for the everyday investor who has been put off investment funds in the past by high charges, high risk and excessive complexity.

Those fund managers who can create Isa funds that offer modest but decent growth along with modest risk will be the winners in the new Nisa era, I predict. Advisers embracing the same opportunities will also prosper.

Kevin O’Donnell is a financial writer and journalist