For all the attractions of Isas, the regime currently resembles a jumble sale of nest eggs. Basically, it is all a bit of a mess and in desperate need of a makeover.
That is why I have been heavily involved in a project to look at ways in which Isas can be given a new lick of paint.
The result is ‘Time for Change’, a report put together by a group of professionals, MPs and yours truly on behalf of the Association of Accounting Technicians.
Many Isas: In recent years, there have been a number of new types of tax-free offering launched
HOW ISAS BECAME COMPLICATED
In recent years politicians have tweaked the rules to make them more flexible.
For example, cash-based Isas were given equal status to investment Isas, so savers could transfer money between the two in either direction.
Previously funds could only travel a one-way street from cash Isas to stocks and shares. The annual allowance was also raised significantly to £20,000 a year.
Isas are popular and widely understood, which may explain why Government is keen to sew an Isa badge to any new scheme it dreams up.
So now we have Isas covering homebuying, retirement saving and investing in British innovation – but the politicians are not content. Another Isa is proposed to cover later life care costs.
It is up to you to work out how many Isas you are allowed, which ones you can pay into without affecting other accounts and the limitations for each. It is tiring and confusion reigns.
Increasing complexity is linear to more consumers switching off.
As the report I have helped influence concludes: ‘The current Isa regime is not fit for purpose and simplification is essential.’
TIME FOR CHANGE
I was a late joiner to the Isa working group put together by the Association of Accounting Technicians.
This was a result of a ten-month stint singing about the wheels of a bus going round and round to my baby Orlagh.
Incidentally, I managed to find just enough time in between verses to open a Junior Isa for her.
Minutes from the first meeting of the group included proposals to scrap, save or replace the various Isas.
They looked as confusing as the current Isa landscape. There was also a suggestion of scrapping Isas altogether and starting with a blank canvas.
All this radical re-imagining of long-term savings was born out of frustration with how the picture looks today.
In the second meeting, at Portcullis House in Westminster, the Isa fog suddenly lifted and a simple solution emerged.
Why not just let everyone have one umbrella Isa under which they could shelter whatever they wanted – savings and investments.
Our straightforward solution is as follows. Ditch multiple Isas and have one allowance that can be used from cradle to grave.
Scrap the Help to Buy Isa – but not the scheme itself. Government could easily continue to award savers a tax-free savings bonus on money put aside for a deposit on a home – without having to attach it to the Isa family.
Also bin the lifetime Isa which overlaps with both Help to Buy and pensions.
THE EVERYTHING ISA
Our solution revolves around an ‘Everything’ Isa – embracing existing cash, junior, stocks and shares and Innovative Finance Isas.
It is similar to the idea of a lifetime Isa proposed in 2014 by Michael Johnson, a research fellow at think-tank the Centre for Policy Studies.
All holdings could be viewed via an online Isa dashboard. This single portal would allow people to more easily monitor their account – mirroring the forthcoming pensions dashboard which will show state, personal and workplace pensions all in one place.
Our group proposes a lifetime Isa limit of £1million – the equivalent of today’s annual £20,000 allowance for 50 years.
This limit would only apply to money paid in, so interest and any profit from investments would be allowed to exceed this cap.
The account would be established from the moment a baby’s birth is registered, though as is the case now it would not be accessible until age 18.
DO YOU WANT SIMPLER ISAS?
This was a cross-party working group – which makes it easier to brush aside party politics – with expert input.
Our solutions are practical, consumer-focused and workable – so not pie-in-the-sky. There was also a desire to keep costs reasonable, rather than asking for unrealistic handouts from the State.
I hope our group’s suggestions are considered with the sincerity and urgency they deserve, because I, for one, want to spend less time inspecting the small print of a suite of Isas.
Would you like a simpler Isa regime? Email: firstname.lastname@example.org
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