OpinionMar 30 2016

Take stock before choosing the Lisa

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In the post-Budget reaction to the launch of the Lifetime Isa, or Lisa, one commenter warned of potential disaster because Isas tend to be seen as cash savings vehicles whereas pensions are seen as stock market investments.

Savers choosing Lisas could therefore earn far less than those choosing pensions.

Now, I was surprised that any savings vehicle offering a 25 per cent top-up on contributions and potentially tax-free access would be described as a potential disaster.

But there is a serious point that the investment industry must take on board.

One reason why Isas are seen by many as cash savings vehicles is that a disorganised investment industry was left at the starting gate when Isas were launched.

Building societies got in swiftly, paying top interest rates, while investment fund managers hummed and hawed. The result was that those who had limited funds snapped up a cash Isa and ignored the investment option.

The investment industry must be quicker off the mark this time and persuade younger savers that shares are the better option for long-term savings.

Marketing the stock market is not impossible. Virgin Money did a great job in the 1990s in encouraging people who had never invested before that it could be straightforward and easy to understand.

Sadly, investment funds remain a mystery to many people who equate them with risk rather than reward – that is if they have heard of them at all.

Of course, the Lisa’s dual task of housing deposit and pension does not make marketing or education straightforward.

The Lisa’s dual task of housing deposit and pension does not make marketing or education straightforward

I do not think any sensible person would suggest that someone saving for a couple of years towards a housing deposit should commit their money to the stock market, especially in the current climate.

One thing is certain. The building societies will be keen to market the house deposit aspect of Lisas – so if they are to be equally linked with long-term investing the industry must move quickly and be prepared to be flexible.

The ideal Lisa will be one which pays interest on cash comparable to that which can be earned in a building society so that investors can save for that deposit first before turning their thoughts to longer-term saving.

Investment companies that want to claim the Lisa as their own will do well to remember the joint aims of the product and park their tanks on the building societies’ lawns.

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We need answers – and quickly

Santander is to launch a voice banking app, which promises to be good news for consumers but perhaps not so handy for retailers.

Account-holders will be able to ask, how much did I spend at Costa last month?

Ouch! That might just persuade some people to cut back on the lattes. Now how about the investment industry following suit?

Would it not be marvellous to have an app that allowed us to ask:

* How much did I pay in fund management fees last year?

* How much has my fund supermarket taken in fees over the past year?

* How has the value of my holding in a fund changed in the past year?

* How much income was I paid by this fund last year?

Imagine how much more investors would engage with their money if they could get instant answers to those questions by just asking them.

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Isas frozen by rates and limits

Back in the good old days the Pep and Isa seasons were frantic and exciting.

Money sections in February and March would have page upon page dedicated to explaining the investments and looking at the options – while advertisers battled to buy space.

The industry would swamp us with fund launches and best-buy cash Isas as they sought to soak up the wall of investor money they dreamed would be heading their way.

How different it all feels today. It is not difficult to see why. Rates on cash Isas are dreadful and the new £1,000 tax-free interest allowance on other accounts makes them look even less attractive.

Then there are the higher investment limits. With a £20,000 Isa limit on the horizon there is no longer a “use it or lose it” mentality for the vast majority of savers.

I suspect more people are using regular monthly saving making the risky end of tax-year plunge unnecessary.

This is all rather a double-edged sword. From an investment point of view, the current approach feels far more sensible than the marketing-led madness of the late 1990s and early 2000s.

But cash savers undoubtedly benefited from the scramble for their money. Today, it feels rather as if they have been consigned to the scrapheap.

Tony Hazell writes for the Daily Mail’s Money Mail section