Savers will be allowed to pay into multiple ISAs of the same type from next year, without losing their £20,000 allowance, Chancellor Jeremy Hunt announced in his Autumn statement.
Current rules only allow a saver to pay into one of each type of ISA each tax year.
From April 2024, however, savers will be able to subscribe to multiple ISAs of the same type and will be allowed to partially transfer funds between different providers.
While the move is expected to boost competition in the market and provide savers with greater flexibility, industry commentators were disappointed that the Chancellor stopped short of a complete overhaul.
Head of platform product policy at Fidelity International James Carter said further reform was needed to remove complexity and promote investment.
Carter said: “Most people will find themselves managing a series of evolving financial objectives over time. However, we know that many find it difficult to identify which products best suit their saving needs. This complexity destroys confidence, leaving many individuals missing out on vital opportunities to strengthen both their short and long-term financial position.
“The individual measures outlined by the Chancellor are a step in the right direction, but they do not go far enough in creating a simplified product set which promotes confidence in investing, encouraging greater levels of financial engagement amongst consumers.”
Carter said products need to align with investors’ needs and behaviour and called for the Treasury to consider reforming the Lifetime ISA by increasing the house price limit from £450,000 to £600,000 and increasing the age limit on opening a LISA from 40 to 50.
Steven Cameron, pensions director at Aegon, said the Chancellor’s announcement will appeal to savers but cautioned that it may not drive investment growth.
“Allowing individuals to save in more than one ISA of the same type per year removes one complexity from the ISA regime and will appeal to a wide group of savers and investors. It may also encourage employers to offer ISAs through the workplace without fearing employees with an existing ISA might inadvertently break the existing rules and end up contributing to more than one.
“However, it does come with the risk that some individuals will fail to self-certify that they remain within the £20,000 annual limit.
“It’s most likely to appeal to those who want to find the most competitive cash ISA rate to use up the remainder of their annual allowance. Ironically, this will do little to support the Chancellor’s growth agenda which relies on more investment in stocks and shares.”
Meanwhile, AJ Bell criticised the failure of the Chancellor to unveil “radical simplification”.
Tom Selby, head of retirement policy at AJ Bell, said: “The chancellor has chosen to tinker at the edges rather than pursue radical ISA simplification for the benefit of savers and investors. It is ridiculous Brits are currently faced with a choice of six types of ISA when deciding where to invest for the future, with different rules and allowances further clouding the picture.
“Allowing people to pay money into more than one ISA of each type in a tax year is a sensible move. However, this is hardly an earth-shattering change in its own right. It should instead have been the foundation upon which more fundamental simplification was built.”
While ISAs have become a recognisable savings vehicle, Selby said complexity and lack of understanding remains one of the biggest barriers to investing.
Research from AJ Bell found only half the people it surveyed could correctly identify the main types of investment ISA and less than a third know the annual ISA allowance.
Selby added: “Today Jeremy Hunt had an opportunity to tackle this complexity head-on in his second Autumn Statement. Sadly, he appears to have bottled it. It is also disappointing the ISA allowances will remain frozen for another year.
“AJ Bell has long called for both pensions and ISAs to be made as simple as possible, in the latter’s case by combining the key features of the current landscape in a single ‘One ISA’ product. This is a reform both consumers and advisers support, and we will continue to argue for sensible simplification across financial services.”
