Politicians, pension experts and the Association of Accounting Technicians (AAT) are calling the government for a major overhaul to simplify Isas.
In Time for change: a review of the ISA regime, a report published today (6 March) by AAT Isas working group, the trade body argued that new types of Isa have different rules, age restrictions, monetary limits and interactions with other Isas, which have added most unwelcome complexities or even penalties to the product.
AAT said that proposing to combine all Isas and establishing a “dashboard would be helpful, but it is even more urgent to recognise important flaws that could damage all Isas”.
The trade body argued that “there are significant risks of a mis-selling scandal associated with the Lifetime Isa”.
It said: “This product is not suitable for many of those who may put their money into it and it is not safe to sell LISAs to people who have not first received financial advice to ensure they understand the risks and that the product is suitable for them.”
Former chancellor George Osborne announced the introduction of the Lisa in his final Budget in 2016, which will allow individuals aged between 18 and 40 to save up to £4,000 per year and receive a government bonus of 25 per cent.
AAT’s report makes a series of suggestions to simplify the savings product, such as removing the Isa name from the Help to Buy scheme, closing the Lifetime Isa to new entrants and folding all remaining Isas into a single, simple, easily accessible called "Everything Isa".
This new product should be established when a baby's birth is registered, ensuring future generations are encouraged to save, it said.
The report also recommends that an individual is opening any savings account, a tick-box option stating "Add this to your Isa?" should be provided, further increasing awareness and consideration of saving in an Isa amongst adults.
An "Everything Isa" dashboard should also be created so that savers can see all their Isa savings products in a single location.
Finally, the trade body is calling for the annual savings limits - £1,000 of annual tax exempt savings income and £2,000 for dividend income - to be scrapped in favour of a £1m lifetime contributions allowance.
According to Conservative MP Sir Graham Brady, “Isas have been a very effective tool for promoting saving and the financial independence that can bring”.
He said: “Simplifying the Isa regime and making it easier for people to save, at times in their life when they can afford to do so, would help more people to provide effectively for their future."
For Labour MP Chris Leslie, “the environment for savers is quite different from when ISAs were first introduced, so it's time to review and refresh the thinking about these comparatively well-known and widely-used products”.
Phil Hall, head of policy and public affairs at AAT, and a member of the Isa working group, argued that the market has moved “from a situation where there were a couple of Isas that were simple, tax efficient savings vehicles, to one where there is an Isa for every day of the week offering unnecessary complexity, bureaucracy and confusion”.