OpinionDec 11 2013

Government should ease Isa restrictions to boost saving

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Instead I prefer to think that I was ‘brought up’ (in my 20s, at least) on a veritable feast of Peps and Tessas. Remember those delightful partners? As compatible as double acts Morecambe and Wise and the Winters brothers – Mike and Bernie (compatible on stage if not off).

Peps were launched in early 1987 (thank you Lord Lawson of Blaby), just as I was making a poor excuse for a cub reporter at Financial Adviser’s sister magazine, Money Management. And when I made the jump to the Sunday Telegraph three years later, John Major (now Sir John Major) announced the launch of tax exempt special savings accounts.

Their launch at key moments in my working life probably explains why I have been an avid follower of individual savings accounts ever since – the vehicle that took over from Peps and Tessas (thank you Gordon Brown).

Despite all kinds of obstacles put before Peps, Tessas and Isas, the latter has become the lynchpin of the long-term, tax-friendly savings market

It seems that despite all kinds of obstacles put before Peps, Tessas and Isas, the latter has become the lynchpin of the long-term, tax-friendly savings market.

Indeed I would argue that it has become as important, if not more important, than the tax-relief friendly pension.

Unlike pensions that have progressively been politicised – subject to ever more restrictions such as the impending further clampdowns on both lifetime and annual allowances – Isas have become more investor friendly. Long gone are the days when investment fund holdings were either classed as qualifying or non-qualifying (what in heaven’s name was all that about?). ‘General’ plans, ‘single company’ plans, self-select plans, have all bitten the dust.

Instead you can now invest £11,520 in the current tax year in near enough anything (shares, investment funds, even Aim-listed shares) and sit back and watch your pot grow (you hope) like a magnificent oak tree. From next April, the annual limit will rise to £11,880.

These tax-friendly Isas have been so successful that a number of Isa millionaires have been created, none more so public than Liberal Democrat peer Lord Lee. Amazingly, 10 years ago, he broke through the £1m Isa valuation barrier and to this day he holds some of the shares that helped him along the road to millionaire status – the likes of soap manufacturer PZ Cussons and professional business service provider the Christie Group.

These tax-friendly Isas have been so successful that a number of Isa millionaires have been created

In fact if you are short of ideas for Christmas gifts for your most lovely clients (to my adviser, I already have one) may I suggest you buy a copy of John Lee’s book, How to Make a Million Slowly: My Guiding Principles from a Lifetime of Investing. It is £17.99 hardback, although you can get it for around £12 plus postage if you have a mooch around the internet.

I cannot think of a better way of reinforcing that key message to clients that long-term investing can prove utterly rewarding. Certainly, mother is getting a copy.

Enough of book plugging. Although it was good to learn in the wake of last week’s Autumn Statement that the government is now considering peer-to-peer lending as an eligible Isa investment, I think George Osborne actually missed an Isa trick or two.

It would have been lovely to see him take Isas on to the next level by clearing away some of the debris that still surrounds them.

By debris I mean the ridiculous rule that only allows half the annual allowance to be saved in cash Isas, and the other stupid stipulation that prevents transfers from equity Isas to cash Isas. Surely Isas should be no more than a tax-friendly wrapper into which investors can fold an assortment of assets, be they shares, cash or bonds. We need fewer restrictions, more freedom.

And it would also have been brilliant if he had put his faith in Isas by raising the annual allowance substantially – say to £20,000. It is a course of action that some serious City hitters – Katherine Garrett-Cox at Alliance Investment Trust and Tidjane Thiam at Prudential – were advocating in the run up to the Autumn Statement.

And rather eloquently too. ‘One of the key engines of business investment is household savings,’ they said. ‘It is the savings of ordinary families, whether they are held in bank accounts or by fund managers and insurance companies, that provide a significant portion of the finance for long-term business investment.’

It is a powerful argument that Mr Osborne should embrace in next year’s Budget. We desperately need to get the nation saving again.

All that remains is for me to wish you, your clients, and of course mother, an incredible Christmas and wonderful new year. Let us hope 2014 brings forth a flood of beaming Isa millionaires as well as ‘bring me (and you) fun, bring me sunshine, bring me love’ (thank you the two Ernies).

Jeff Prestridge is personal finance editor of The Mail on Sunday