The ISA regime needs simplification after various governments have stretched the brand too far, which results in what is likely to be a confusing picture for savers.
interactive investor is pleased to see AJ Bell this week campaigning on ISA simplification.
It echoes some of the points raised by interactive investor in our Spring Statement submission, made in February. interactive investor’s CEO Richard Wilson has reiterated these calls directly to Treasury this week.
interactive investor has argued that the ISA regime needs simplification after various governments have stretched the ISA brand too far, which results in what is likely to be a confusing picture for savers.
The platform has recommend consolidating the existing ISA choices to Stocks and Shares ISAs, Junior ISAs and Cash ISAs. It also thinks there is a financial education campaign to be done around ISAs. Too many people think they are a product in themselves rather than just being a tax wrapper.
Alice Guy, Head of Pensions and Savings, interactive investor, says: “The more investment wrappers placed in front of potential savers, the fewer of them will actually benefit from saving and investing for their future. For example, a 30 year old self-employed basic rate taxpayer who wishes to save for the future and may not yet know exactly what those future savings will be used for, must decide between five different ISA wrappers, from straightforward equity and cash ISAs, through to Help to Buy, Lifetime and Innovative Finance ISAs, before they even decide the specific investment they want to put in their savings arrangement.
“We ask the government to consider simplifying the choices of ISA available. There is no consumer benefit to having multiple ISAs. We recommend consolidating the existing ISA choices to Stocks and Shares ISAs, Junior ISAs and cash ISAs.”
The Lifetime ISA
In ii’s February Spring Statement submission, interactive investor gave the LISA a special mention. It benefits from a top-up incentive from the government to help pay for either a house purchase or retirement. It was introduced at a particular moment in policy development but has never been built on; it sits as an anomaly, a halfway house between an ISA and a pension.
Were LISAs to be retired, in the spirit of ISA simplification, transition arrangements would need to be made for existing investors, however they will be reasonably straightforward and importantly, the longer this is left, the more complicated the transition arrangements will become.
If the government wishes to offer top-up incentives, for example for house purchase, it would be straightforward to create a set of rules for a back-end top-up which could be paid to an ISA investor at the moment when they withdraw funds to buy their first home. This would have the additional benefit of saving the Treasury money in the short term and also give the government of the day greater control in how and when it chooses to deliver any top-up payments in the future.
interactive investor also thinks it is unfair that customers can’t hold currency other than sterling in their ISA accounts (in contrast, they can hold multi currencies in their trading account and SIPP). This adds cost for those customers trading in international markets (who have to convert for every transaction) and also limits customers’ ability to take a position to reflect the strength of one world economy versus another. We think this is unfair.
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