The Chancellor announced plans to introduce a Starter ISA for first-time investors in the Autumn Budget on Wednesday.
Alongside plans to retain the current cash ISA allowance at £20,000, John Healey said he will work with the sector to create a new ISA to reward first-time investors.
The move was welcomed by Isabella Galliers-Pratt, senior investment director at Rathbones.
“A Starter ISA could be a much more effective way of creating a new generation of investors rather than trying to push people out of cash. The real barriers to investing are often confidence, understanding and fear of losing money rather than a lack of tax-efficient products.
“The detail will matter but a meaningful incentive to make that first investment alongside the right education and support could help turn more savers into long-term investors.”
However, Steven Levin, chief executive of Quilter, said the Chancellor was stepping back from one “unnecessary complication” only to replace it with another.
Levin said: “We do not need more types of ISA. For most adults, a Cash ISA and a flexible Stocks and Shares ISA should be capable of meeting their needs, alongside Junior ISAs for under-18s.
“Creating another ISA means another set of rules for customers to understand and another product for providers to build and administer. It could also mean customers having to convert from a Starter ISA into a full Stocks and Shares ISA later. That adds complexity, cost and administration for little obvious benefit.”
While Levin said helping people take their first steps into investing is the right objective, he argues incentives should work through the existing ISA framework rather than through the creation of another product.
“Every new ISA label risks diluting the simplicity that is one of the great strengths of the ISA brand.
“The government should use this moment to simplify the ISA landscape, not add to it. Cash has an important role for emergencies and short-term needs, while investing offers greater long-term growth potential for those able to accept the risks. Policy should help people understand that distinction and give them the confidence to invest, supported by better financial education, guidance and advice.”
For Chet Velani, CEO at EV, more must also be done to encourage people to access financial support earlier in their lives.
“The Government’s ambition to encourage greater retail investment is welcome, but there is a disconnect between encouraging people to invest and ensuring they have access to the support needed to make informed decisions.
“The challenge isn’t simply moving money from cash into investments but helping consumers understand whether investing is appropriate for their circumstances, how it fits alongside their short-term financial resilience and longer-term retirement objectives, and the risks involved. Without accessible guidance and advice, there is a risk that these measures fail to deliver the behavioural change the Government is seeking.”
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