Opinion  

Greater flexibility with Isas would benefit savers

Tony Hazell

Tony Hazell

Savers have been bashed, smashed and generally battered for the past four years – and I can see little hope of the assault easing up this year.

The Funding for Lending scheme is the latest government policy blamed for crushing savings rates.

There is plenty of evidence to back up those assertions. Just compare any best buy table now with that six months ago – and look particularly closely at the fixed rates.

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This coming after £375bn of quantitative easing was really the ultimate insult to those trying to earn a few quid a year from their money. So what can realistically be done to help savers?

I have seen lots of calls to raise the overall Isa limit, but I think these miss the point.

It is the overall structure of the Isa that needs to be changed. I can think of no sensible reason why savers should only be allowed to put half their allowance into a cash Isa.

Does anyone seriously believe that most of those who prefer cash Isas are topping up with a stock market Isa? The evidence suggests not.

And this certainly is not going to be a good option for pensioners and others with modest amounts of savings who need extra interest the most.

So why not allow everyone to choose to put their whole allowance into cash or shares? And to swap back and forth between the two?

Again, there is no sensible argument for allowing only a one-way switch to shares. This directly impedes investors from taking the sensible action of removing the risk from their portfolio as they grow older.

I am also hoping the new Financial Conduct Authority, when it launches, will get to grips with banks and building societies who steal their savers’ tax breaks by paying less on cash Isas than on taxable accounts.

The FCA may not be able to interfere with interest rate setting but it can look at whether customers are being fairly treated.

I would argue that there is a very strong case that a bank or society that pays less on a two-year fixed-rate cash Isa than on a taxable account is behaving anything but fairly.

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Index move

We are all used to becoming mugged by the government as it seeks to raise money from every possible avenue.

But a gradual move from using the retail price index to the consumer price index might just prove to be the most insidious change of all.

The state pension has already been locked to CPI and many company pensions have done that.

Now we await the results of a consultation from the Office for National Statistics on possible changes to RPI to bring it closer to CPI.

It is more than a year since the Office for Budget Responsibility forecast the difference between the two measures was likely to average 1.4 percentage points in the coming decade.