On the 1 July the new Super Isa came into force. Often referred to as a Nisa (New Individual Savings Account), it is an overhaul of the old Isa. The limit has increased from £11,880 to £15,000 and there is greater flexibility in terms of what the Nisa can be used for.
The Treasury has to be applauded for encouraging more saving and, with the greater flexibility of the options available, this aligns with the annuities change which gives the impression of a Treasury wishing to give more personal responsibility to the people to whom the cash for Nisas and annuities belongs. That said, there is a definite ‘more of the same’ feel to the Nisa.
Enough has already been written about the tax breaks available through this method and there are no real changes in that regard.
How much the increased choice of options available such as stocks and shares will help is subject to debate. The wider range of investments available is still from the same old categories of investment trusts, bank shares, stock market and government bonds.
The most important matter when it comes to locking money away is the yield on offer, and the interest rates and returns on these types of investments are shockingly low and will not encourage an informed saver to take up a Nisa.
The Treasury must understand that, while there is a tax benefit to a Nisa as opposed to a traditional savings account, a client looking to invest in a Nisa at 2.25 per cent gross can only expect a return of £337.50 for the year. Even with a tax benefit, this hardly keeps up with inflation and therefore there is no real gain for the saver. As a policy it has good intentions, but the reality for those people within society to whom a saving mentality is natural, they will generally be informed enough to know that there is no real point to locking money away in a Nisa.
Moreover, while the figure above means that the saver does not gain in real terms over the first year, the fact is that, in most cases, when it comes to savings accounts we are too busy to move our nest eggs on the first anniversary. We are then moved to a lesser rate of return which, in effect, means it is costing us money to keep our savings in the Nisa
The government has missed a huge opportunity with the revamped Nisa. We can only hope that the Treasury will recognise the benefits of alternative investments through the tax system, particularly UK-based products, which help to create jobs within the UK. With the buoyant housing market, the desperate need for homes and resistance from lenders to invest in the regions, there is huge potential for a progressive forward thinking government.
If investment were encouraged through the tax system and allowed into the burgeoning and lucrative alternative investment sector, the benefits to all parties could be exponential.
It speaks volumes that the government is encouraging more independent thinking through its widely acclaimed pension changes, especially viewed alongside the trust it is placing in those diligent people to make their own informed – and informed is the key – investment decisions when it comes to retirement and pension provision.
Alternatives have often been treated as a fad-type investment like wine, classic cars, film or whatever other subject matter is en vogue around the dinner tables of middle England. It would be folly to take this view and to classify all non-traditional investment in this way.
Alternative investments have often been classed as one entity and there have been worrying stories regarding certain sectors of this market. To classify the whole market as one would be grossly unfair and bordering upon the ill-informed. Each individual investment type should be considered on its own merit in the same way that a blue chip stock would not be cast in the same light as a venture capital start up.
While care, and in some cases extreme caution, should be exercised when considering alternative investments, much the same can be said about all investment decisions.
Without a doubt, a case in point would be overseas investments, particularly those domiciled in questionable political arenas which may be subject to national or regional upheaval or instability. Any short or long-term investment should be informed on the basis of risk attached to that particular socio-economic situation now, and for the duration of the investment – much the same view one would have in relation to the energy exploration industries.
The real opportunity missed by the Treasury relates to UK-based property development: often the poor relation when it comes to financial or investment products, it is a secure asset-based investment class which is easy to understand. There is an acute and well-documented housing shortage and, specifically relating to the regions, a lack of appetite to fund housing development from the mainstream lenders.
It is clear that our Bank of England governor, Mr Carney, recognises the importance of maintaining and encouraging a steady growth housing market outside the inflated London and south east area. His policy relating to the 4.5 times loan to income limitations placed on the banks is designed to cool the overheating south eastern corner of our nation while not affecting the regions, where salary multiples are not necessarily a factor.
The fact that the banks and other lenders are reluctant to lend to smaller regional house builders creates an opportunity for a better, alternative method of funding which would in turn benefit the UK’s millions of savers.
By allowing investment into residential development, either through direct loan note type investments or through a security trustee arrangement, savers would benefit from a much higher return on their deposits. A simplistic arrangement would be that deposits in a Nisa would be held by a trustee and lent to regional developers at around 10 per cent a year. This would enable a return, allowing for a 2 per cent to 3 per cent administration and management fee, of circa 7 per cent to 8 per cent.
The holder of the Nisa account would benefit hugely in relation to the returns offered. This would allow able regional developers to benefit through being able to access the funds. Those same developers could be encouraged to develop brownfield sites and thereby improve the areas, affordable housing provisions would be encouraged which would negate or lessen the need for the outdated and, some would say, flawed system of section 106. Local work would be created and local homes would be built for local people and thereby improve the quality of life.
Longer term, the benefits for the country as a whole are staggering: savers would benefit from improved rates and it would encourage banks to be more competitive with their interest rates offering. Stagnant housing developments, shackled by a lack of finance would go ahead and local employment and homes would be created. As a result of the build programme, housing prices would grow steadily, which would be beneficial to all concerned and could ease extremes of the boom-and-bust cycles often associated with the housing sector.
The Treasury could and should be looking at all alternatives to benefit the long-maligned savers of the country. With a little progressive forward thinking, this can easily be achieved, adding real value to people’s lives and building the wealth of UK plc.
Peter Kiely is a director of Harewood Associates
Key Points
The Treasury has to be applauded for encouraging more saving with the New Isa
The real opportunity missed by the Treasury relates to UK-based property development
By allowing investment into residential development, savers would benefit from a much higher return on their deposits
