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Innovative Finance Isa warning from advisers

Innovative Finance Isa warning from advisers

Advisers are worried the new Innovative Finance Isa might encourage people to use peer to peer lending for their retirement income.

According to Simon Massey, director of wealth management at MetLife, the newly launched IFIsas may well attract many investors through the higher potential rates of return, but without understanding the risks involved.

He said: “A major concern of advisers is the launch of the IFIsa will encourage people to use peer to peer lending (P2P) for their retirement saving.

“The P2P sector is growing strongly and offering attractive returns, particularly when interest rates are at an all-time low, and likely to remain there.

“This could put pressure on cash Isa savers to find alternative investments.”

Mr Massey warned people needed to be “fully aware” of the possible risks and costs involved in the IFIsa.

“They need to weigh up the risks particularly when they are looking for more certainty over retirement income and investments.”

Tom Williams, a chartered financial planner for WH Ireland, commented the average saver might not immediately realise funds within an IFIsa will generally be ‘locked’ and inaccessible for an agreed term.

Moreover, he warned younger savers in particular, could get tempted into the product without fully understanding the risks involved with investment in such products. “Young and inexperienced investors may be attracted to by the social networking environment without understanding the risks.”

The government consulted on the rules to include peer-to-peer loans within Isas in 2014.

According to the HMRC’s December Policy Note, Income Tax: Innovative Finance Isa and P2P Loans, the Financial Conduct Authority identified particular groups of people for whom such crowdfunding platform-based Isas might prove a risk.

These included young people just starting out on their savings journey, who may not have enough investment savvy to understand all the implications of IFIsas.

For more information on Isas, and to earn 60 minutes’ worth of structured CPD, click here to read our latest guide to Isas.