Happy 20th birthday to the Isa. Well done for making it this far – will you make it to another decade?
I know I am getting a little presumptuous – the accounts do not actually celebrate their anniversary until the tax year rolls around – but it is as good a time as any to see what their future holds.
This is particularly the case today when the limits on Isas have risen to £20,000, as the annual allowance on pensions slips down towards it.
At the same time we also have Lifetime Isas, which are a thinly veiled attempt at seeing whether savers embrace one tax-free plan over another for retirement planning.
These things are no coincidence.
Us Brits love an Isa. They are simple and efficient. We have £608bn in them with around £70bn subscribed every year.
Meanwhile, cost of tax relief on pensions – currently heading to more than £40bn a year – is one of the great headaches for the Treasury. It is one reason speculation about limiting tax relief is one of the perennial Budget favourites.
And the wonks inside the Treasury, who routinely prove to be very good at doing sums but not so handy at understanding behaviour of ordinary people, are clearly interested in seeing how they can save money from pensions.
That makes the Isa a very helpful weapon to have in its armoury. The assumed lost income tax on the gains in an Isa are only around £2.9bn a year, which is clearly much more palatable than the vast sums lost to pensions.
As such it makes sense that the Isa in its current shape could be reformed to make it an all-round savings hub for ordinary investors.
You can see the government is already thinking along these lines: we have the Help to Buy Isa; one for innovative finance; a child account; another that doubles as a pension; and there’s also constant speculation we may have one for care home fees.
We should not forget that there was once also a life assurance Isa but this died a very slow death until it was quietly axed in 2005.
The government clearly wishes we all saved in an Isa, and policy increasingly seems designed this way.
Quite how this sits alongside auto-enrolment is not so clear. But with each growing bit of sparkle added to the Isa, a little bit of tarnish is put on the pension.
Really it should be horses for courses. We need both as incentives, as clearly this is the only way to encourage saving.
Perhaps if pensions could take a leaf out of the Isa rulebook we could take steps to make them as simple and flexible as possible. Then we might just get a pension season at the end of the tax year, as well as one for Isas.