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Willis Owen calls for ISA’s to be simplified

Posted by Adrian Lowcock in Press releases category on 03 Mar 20

If the ISA is going to survive as the phenomenal success story of modern UK consumer finance that it is, it needs to change and simplify, says Willis Owen. 

The ISA has been around since 1999 and has been a resounding success, with the market value of Adult ISA holdings currently at £608 billion.1

Over the years the ISA has become a staple for tax efficient savings, and an investment product for millions of people to get a head start on their savings goals. A large part of his popularity can be attributed to the simplicity of ISAs and the accessibility of the products.

However, they did not start off that way. The ISA has been tinkered with over the years. 

Until recently, improvements were made to simplify ISAs and included removing the Mini and Maxi ISA. The allowance was raised and there were different limits imposed on the different ISA products. 

But more recently, in an attempt to appeal to a wider audience and a younger generation of investors former Chancellor George Osborne made significant changes to the ISA which we at Willis Owen, believe could damage the long term success of ISAs. 

1. Remove the Maximum of one stocks and shares ISA or one cash ISA per-provider

This restriction is meaningless.  ISA managers cannot control whether a customer pays in £20k into their ISA and then puts another £20k in an ISA with someone else.  The HMRC get returns of all subscriptions to identify whether anyone has oversubscribed in total during the tax year. There the restriction serves no real purpose other than to limit freedom and choice for investors. 

2. Too many types of ISA

Adding Innovative Finance (IF) ISAs and Lifetime ISAs (LISAs) make ISAs more complex, rendering the mass accessibility point moot. 

The Innovative Finance ISA hasn’t seen much uptake since introduction in 2016. Just 36,000 people have subscribed to an IF ISA . The Lifetime ISA is extremely complex, with different tax rules and age allowances. 

The new Chancellor has an opportunity to make ISA’s simple again. Consolidating the IF ISA into Stocks & Shares ISAs would be a start, as it removes added complexity.

3. More like SIPPs

The ISA should be a neutral product and not have links to different industry’s or politics. Both the IF ISA and the Lifetime ISA have been used politically by linking the ISA to parts of the economy such as housing or the Peer to Peer (P2P) industry. This alienates parts of society that could potentially benefit from opening an ISA. ISAs could reasonably be more like SIPPs, whereby a multitude of types of investment could be held within, without the need for multiplying the number of accounts an individual has to hold to access the benefits of different asset classes. 

4. Phase out the LISA

Longer term, the Lifetime ISA, which crosses a bridge to pensions and retirement, needs revising and ideally phasing out, bringing the product back to its original purpose - to let all savers and investors have a place to grow their money and be able use it for whatever they need to. 

A simple Stocks & Shares ISA could have added parameters to it whereby if someone wishes to use their balance for a home or retirement specifically, it triggers the generous government bones with the £4,000 limitations. This would not only enfranchise many ISA holders who missed out on the LISA to access the bonus, it would reduce the confusion that such a panoply of product creates. 

Beyond that it should be considered whether a 25% bung is really the best way to help prospective homeowners to get onto the property ladder. Like Help to Buy if the LISA grows exponentially in importance it could have a distorting effect on the price of housing as it stokes demand rather than increase supply.

1Accurate as of April 2019