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ISA shake-up proposed by cross-party working group

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The ISA regime has been subject to considerable change in recent years and today a working group has called on the government to give the structure a radical shake-up.

The working group comprised senior figures from the Conservative, Labour and Scottish National parties, alongside experts from the savings industry and accounting profession, supported by the Association of Accounting Technicians (ATT).

The group’s report ‘Time for change: a review of the ISA regime’ suggests folding existing ISA products into a simple wrapper called the “Everything ISA”, allowing individuals to monitor their savings products within a single product.

The paper said this would address the problem of more and more ISAs and the fact they interact poorly with each other, with a variety of different savings limits as well as different rules and requirements that ‘has made the ISA savings landscape far from clear’. The paper stated: “It is now difficult for many to understand and thus acts as a disincentive rather than an incentive to save.”

The group also said that the original objectives of several of the existing ISAs are not being met. The product was designed to encourage investment into stocks and shares, but the majority of ISA subscriptions are for cash ISAs. The paper added: “(Stocks and shares ISAs) are almost exclusively used by people who would buy shares anyway. Similarly, justifying the Junior ISA is difficult when existing child savings accounts already meet their savings requirements and there is usually no income tax to pay on these.”

Other recommendations from the working group include establishing the “Everything ISA” on registration at birth, ensuring future generations are encouraged to save; adding a tick box when opening any savings account, stating “Add this to your ISA?”, and further increasing awareness and consideration of saving in an ISA. It also suggested scrapping the annual limit in favour of a £1m lifetime contributions allowance.

‘An ISA for every day of the week’

Mark Farrar, chief executive, AAT, said:  “There used to be a couple of ISAs that were simple, tax efficient savings vehicles and were widely understood by the general public. We now have a system where there is an ISA for every day of the week, offering unnecessary complexity, bureaucracy and confusion.

“ISA simplification would make their availability and features more widely understood, and ultimately play a greater part in addressing the country’s terrible savings ratio. As such, this report offers a worthwhile, credible and thought-provoking alternative to the current muddied landscape, supporting AAT member calls for greater clarity and simplicity in the financial system.”

Andrew Hagger, director at MoneyComms, said: “The original concept of an ISA was straightforward and easy to grasp, but over the years it’s become increasingly complicated and now puts many consumers off tax-free saving altogether.

“By removing some of the complexity and confusion, hopefully we can encourage more people to adopt the savings habit throughout their lifetime.”

See’s Your ISA mix: how many can you open and hold? for more information.

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