The head of multi-asset at Royal London Asset Management has warned Isas are increasingly being used over a 30-year time-span without a pension-style investment strategy behind them.
Speaking during a roundtable event today (12 October) Trevor Greetham said: “I worry people are using cash Isas as part of their long-term savings strategy.
“What you have got is a massive mis-match, with all this money sitting in cash Isas, which is there for the long-run, without having the long-term objectives.”
He said advisers should be talking to people about their cash Isas to ensure – if they are sitting on that money for more than a few years – it is invested in portfolios similar to pensions.
“If you are putting money in a cash Isa, you are on the wrong side of history,” Mr Greetham said, adding such savers will be penalised by the government’s strategy to cut the debt burden.
“The people that get penalised by low interest rates are the savers and the pensioners, and the people that benefit are the borrowers and the risk-takers.”
The multi-asset head also said he had seen an increase in the number of defined contributed schemes investing in his multi-asset Governed range, which currently holds more than £10bn in pension assets.
This coincides with research from Cerulli Associates, which predicted multi-asset funds would be increasingly used in UK DC pension schemes.
The report from Cerulli also accused some multi-asset offerings in Europe of breaking their promise to be a buffer against market tremors, but Mr Greetham said he generally thought multi-asset funds had done well around Brexit.
He pointed out that some of his funds have returned as much as 20 per cent since the EU referendum.
“Although you’ve always got to be aware that some of these are one-off gains, helped by the pound weakening, so you are not guaranteed these gains can happen in the future.”
He said fund managers of multi-asset vehicles need to ensure there is a broad-enough spread of asset classes that something is doing well.
Mr Greetham, who joined Royal London from Fidelity in 2015, pointed out most multi-asset funds do not invest in commodities or gilts, which he argued can offer resilience in a wide range of situations.
Patrick Connolly, chartered financial planner at Chase de Vere, said: "Everybody needs to have some money in accessible cash savings to cater for any short-term emergencies or requirements, and it is often sensible to hold this in tax-free cash Isas.
"However, too many people hold too much money in cash for the long-term, which even with tax-free interest is likely to lose money in real terms as we remain in a low interest rate environment."
He said these people might be nervous of taking investment risk, not understand their options, or simply don’t trust the financial services industry.