AJ Bell has renewed its call on the government to merge all Isas into one after research showed advisers were blaming the products for making their job more difficult.
Research from AJ Bell, published today (October 10), showed 84 per cent of financial advisers thought Isas had become unnecessarily complicated for their intended use and for consumers to understand.
Of the 261 advisers polled in September, nearly a fifth thought this complication was down to government interference, while three quarters thought there were too many versions of the product.
AJ Bell first wrote to chancellor Sajid Javid in July, calling on him to radically simplify the rules around Individual Savings Accounts (ISA) in order to help close the savings gap in the UK.
In response to this letter the financial secretary to the Treasury, John Glen, said he had asked his officials to set up a meeting with AJ Bell to discuss the ‘One Isa’ proposal in more detail.
He said: “The government is committed to supporting all savers of all incomes and at all stages of life.
“Isas are a key part of this support. It is therefore important that the scheme remains simple and sustainable for consumers and savers alike.”
In AJ Bell's latest research the provider found about three quarters of advisers thought one product could cater for all clients' needs and 92 per cent of advisers backed its proposals and threw their support behind the proposed consolidation.
Under AJ Bell's 'One Isa' proposals all six current available products are merged into one.
The Isa would have a £4,368 allowance for under-18s and a £20,000 standard investment limit and consumers would only be able to subscribe to one Isa a year.
Andy Bell, chief executive at AJ Bell, said: “When you take a step back and think about the fact we now have at least six versions of what started out as a very simple product it seems completely absurd.
“It is a classic case of product over-engineering, centred in political point scoring rather than focusing on the needs of customers”
Under the proposals permitted investments would be the same as the current stocks and shares Isa — which would form the foundation of the product — and there would be no capital gains tax on realised gains or income tax on interest or dividends.
According to AJ Bell, the current cash Isa could also merge into the 'One Isa', as managers could simply choose to restrict the investments permitted within the Isa to cash, rather than stocks and cash.
Both the Lisa and the Help to Buy Isa would be merged into the new Isa. The government bonus would be added to the funds used for a home deposit when withdrawn.
The Junior Isa would simply merge into an 'adult' One Isa when the investor turns 18, while the Innovate Finance Isa would be abolished.
Mr Bell thought it was not too late to change the system as Isas were still “very popular” and it would be “very easy” to wind the current versions into a single Isa product.
He added: “I think this would be an extremely positive and popular change that would be welcomed by consumers, financial advisers and Isa managers. I also think it can be implemented in a way that is cost neutral to the government.”
Scott Gallacher, chartered financial planner at Rowley Turton, said 'Isa' was a popular name with clients and the government had tried to capitalise on its popularity by using it in "ever increasing ways".
He added: "I see muddying of the waters with Isas as potentially dangerous and confusing for clients, and would rather Isas revert to two simple options — cash or Investment."
Alan Chan, director at IFS Wealth & Pensions, agreed Isas had become too complicated and thought there were "so many different types of account", many people didn't know how they interacted with each other in terms of allowances.
He said he was particularly concerned with the Innovative Finance Isa as it was sometimes marketed as low risk despite investing in peer-to-peer lending and other risky investments.
Mr Chan added: "Isas have been very popular but I feel sooner or later the government will run the risk of tarnishing the Isa name and damaging consumer confidence in Isas."
imogen.tew@ft.com
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