The Government risks alienating investors if it pursues the idea of a UK-focussed ISA, warns AJ Bell.
Recent reports suggest the government is planning ISA reforms targeted at increasing investment in UK assets. This could entail an additional £5,000 ISA allowance on top of the existing £20,000 allowance but restricted to UK investments only.
However, AJ Bell said it would add complexity for investors in an already saturated and confusing ISA market.
Tom Selby, director of public policy at AJ Bell, said: “One of the key reasons ISAs have been popular with investors is their simplicity. While the ISA allowance is overdue an upgrade, restricting that extra allowance to UK investments would layer on extra complexity to a product that has already become increasingly complicated over the years.
“Investing can be simple and straightforward, and ISAs have been successful largely because they are relatively easy to understand. But our research shows complexity risks confusing investors and could undermine the popularity of the product if left unchecked.”
According to AJ Bell’s own research, only half of people are able to identify the existing six types of ISA, with less than a third able to identify that the current ISA allowance is £20,000.
Selby said adding a further ISA option to the mix “feels more like a gimmick” than long-term policymaking and called on the government to consider increasing the overall ISA allowance instead.
Selby added: “A much simpler solution would be to increase the overall ISA allowance and leave individuals with the freedom to invest in a way that suits their needs and appetite for risk. Many would naturally choose to invest in the UK of their own volition, meaning there would be a benefit to UK firms without the layering on of unnecessary complexity.
“Another option said to be under consideration would see a portion of the existing ISA allowance become restricted to UK investments. This would be a retrograde step that would restrict choice and reduce the ability of ordinary savers to diversify their portfolio globally. Depending on how it is structured, it could also add huge complexity, with no clear indication of whether or not it would positively impact UK Plc.”
