ISAsMar 6 2018

Industry calls for major Isa overhaul

twitter-iconfacebook-iconlinkedin-iconmail-iconprint-icon
Search supported by
Industry calls for major Isa overhaul

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”.

He said: “Today's report offers a worthwhile, credible and thought-provoking alternative to the current muddied savings landscape."

According to Rachael Griffin, tax and financial planning expert at Old Mutual Wealth, adults invested £62 billion into Isas and £858 million was heaped into Junior Isas during last tax year.

She said: “It is important that people don’t lose trust in the successful Isa brand which has been built on simplicity and now holds a substantial part of the UK’s savings.”

However, “navigating the world of Isas has become as complicated as working your way through a maze blindfolded,” she added.

Ms Griffin believes that a simplification of Isas and, in particular, the establishment of an Everything Isa “could mean savers just need to get grips with one set of rules and features”.  

Tom Selby, senior analyst at AJ Bell, is also backing AAT’s recommendations.

He said: “Complexity is the enemy of good savings policy and the government should focus its attention on making the rules governing both pensions and Isa as straightforward as possible.

“We believe there is a strong argument for incorporating the features of all the main Isa products – including Cash, Stocks and Shares, Junior, Innovative Finance, Help-to-Buy and Lifetime - in a single product.

“On the Lifetime Isa, we agree the exit penalty and age restrictions are major drawbacks, but would prefer the government to remove those inhibitors rather than scrapping something which has proven extremely popular with investors.”

maria.espadinha@ft.com