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Calls for new Chancellor to tackle overabundance of ISAs

6 August 2019

AJ Bell and Quilter are two firms calling on the new Chancellor of the Exchequer Sajid Javid to address the confusing number of ISAs in the market, in order to make things simpler for consumers.

Andy Bell has written to Sajid Javid, the new Chancellor, calling on him to radically simplify the rules around Individual Savings Accounts (ISAs) in order to help close the savings gap in the UK.

The chief executive of investment platform, AJ Bell, believes that ISAs have become unnecessarily complicated and that this complexity is a barrier to people saving more.

The platform provider is also launching a policy paper (ISA Simplification – One ISA) written by its technical director, Peter Hopkins, who previously led the pension simplification project at HMRC.

The policy paper outlines AJ Bell’s One ISA vision and how the existing versions can be consolidated into a single product in a way that is cost neutral to the Government.

In the letter, Andy Bell, chief executive of AJ Bell, says: “ISAs started life as a very simple, tax efficient savings product.  Over the years, various changes and additions to the product have made them unnecessarily complicated, with at least six variations in existence depending on how you look at it.  People now have to choose which ISA suits their specific needs and often they can’t decide, which leads to them doing nothing and not saving.

“We believe a much simpler system, based around a single ISA product would mean that the only decision people need to make is to open an ISA and start saving.  A single ISA can still cater for all the outcomes of the existing versions but without requiring the customer to make the decision when opening an account.”

Quilter also is calling on Javid to review and simplify the ISA landscape. Tax and financial planning expert Gordon Andrews says while the ISA is viewed as a successful, simple and easy to use savings product, in fact, over the years the brand has become “muddied with complicated products”.

He points to the LISA as a prime example. “The Lisa was born as an experimental hybrid between a first time buyer incentive scheme and a retirement savings plan. The Housing Minister, James Brokenshire, recently made a similar proposal, recommending that the pensions system be reformed to allow first time buyers to use their pot to finance a mortgage. The fact his plans were roundly scorned speaks volumes.

“When George Osborne first announced the Lisa it was seen as a potential forerunner to a ‘taxed-exempt-exempt’ approach to retirement savings with a universal flat rate savings incentive of 25%. Thankfully those proposals, floated before the last election, now seem to have been consigned to the pensions policy scrapheap.

“The result, however, is a tax wrapper with exit penalties acting to deter withdrawals, much like an unauthorised payment from a pension, while being branded as an Isa. It is no surprise that consumers have already been fined more than £1m for accessing their money early.

“Simplifying the plethora of ISAs now on offer would ensure people aren’t put off saving by trying to navigate a complex field of products. A first time buyer bonus should be applied at the point of purchase, like the Help to Buy ISA, if the government were still to offer support for aspiring homeowners.”

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