Initially offering a simple choice between products that could hold cash or stocks and shares without incurring tax on the gains, Isa market variety has exploded in recent years, as successive governments seek to encourage savings culture.
The Junior Isa, Help to Buy Isa and Innovative Finance Isa have now been joined by the incoming Lifetime Isa, announced in the most recent Budget.
Calls are mounting for the regulator to react to the increased complexity in the market by making financial advice mandatory before consumers purchase Isas.
Speaking to FTAdviser, James Hay’s head of technical support Neil MacGillivray said there was potential for confusion. “There is one limit, but multiple Isas to split it through and there is a need for advice.”
Rules on the Lifetime Isa are very specific, he said, questioning whether the government’s Pension Wise service would produce guidance for such products and where the funding would come from.
The Lifetime Isa allowance will form part of a higher £20,000 limit which will work with, and in some cases be an alternative to, pensions.
It is a change Simon Bashorun, financial team leader at Investec Wealth & Investment, argued requires specialist advice.
The Lifetime Isa has of course a dual purpose, and this may increase confusion. Jane Wolstenholme“The cost to a client of getting an Isa wrong today could be negligible; the cost to a client of an unsuitable Lifetime Isa or missed Lifetime Isa opportunity going forward could be significant,” he said.
Claire Trott, director and head of pensions technical at Talbot and Muir, agreed the Isa market is fast approaching the point where consumers need advice on access and use of Isas.
“I can see people contributing to the new Lifetime Isa because they believe it to be more flexible than a pension, only to be hit by the exit penalties should they want to get their money out before 60 and not to buy a house,” she said.
“It will of course be in the small print, but with so many options they may not realise the implications. If they don’t have a pension, there is in no option to use carry forward to get it into a pension easily.”
Contribution limits, which differ across the Isas, add to complexity, Ms Trott said. A person may not realise they are paying into more than one account and therefore paying in too much.
Jane Wolstenholme, partner at law firm Charles Russell Speechlys, said that the newer ‘special purpose Isas’ like Help to Buy and Lisa should “perhaps not be labelled as Isas at all”.
“Both are aimed at buyers of first homes, so for anyone who already owns a home, it should be clear that they may not be suitable,” she said.
Andrew Pennie, marketing director at Intelligent Pensions, said the best outcome would be for savers to receive ongoing advice on their Isa investments, to ensure it is the most appropriate savings vehicle and to identify the best investment strategy.
But he added that the cost of advice relevant to the investment being made will always be a factor people consider.
“Someone saving £50 a month is unlikely to spend a few hundred pounds on investment advice, but as the Isa fund grows in value and the investor looks to maintain an ongoing appropriate investment strategy, the benefit of advice will become more valuable and justifiable.”
Daren O’Brien, director at Aurora Financial Solutions, said: “The different Isa’s all have different options, caveats and now even break clauses in, and clients will start to need better advice to understand the differences and nuances of each.”
A spokesperson for HM Treasury told FTAdviser would carry out “industry-wide” discussions on the detailed design of the Lifetime Isa, including with The Pensions Regulator, the Financial Conduct Authority and building societies and banks, prior to the publication of the Finance Bill 2016.
ruth.gillbe@ft.com
