- Media reports suggest the Treasury is planning reforms to the ISA system, with ideas ranging from merging the key features of existing ISAs in a single ‘One ISA’ product to hiking the available allowance for those who invest in UK companies
- AJ Bell has led the campaign to simplify ISAs, with our policy paper published in April this year kicking off a wide debate about the future of ISAs
- In this paper, we set out how a ‘One ISA’ product could be created and the potential benefits to consumers
- AJ Bell has also carried out consumer and adviser research which demonstrates significant demand for simplification
- FCA data also shows there are nearly 8.6 million consumers holding more than £10,000 of investible assets in cash and has set itself a target of reducing this number by 20%
Tom Selby, head of retirement policy at AJ Bell, comments:
“AJ Bell has been a long-time advocate of radical ISA simplification. UK investors now have six different versions of ISAs to choose from, each with slightly different aims and rules governing them. This creeping complexity risks undermining a product that has proven popular with millions of investors. Combining the best features of the current landscape in a single ‘One ISA’ product would make it much easier for people to engage with the world of investing.
“Research among both consumers and advisers supports our view creeping complexity in the rules risks acting as a barrier to sensible investing. While over 70% of Brits are familiar with ISAs, less than half could correctly identify the main types of investment ISA and less than a third know the annual ISA allowance is £20,000.
“Half of the individuals surveyed said the different versions of ISAs make them too complicated and that a single ISA product would make them easier to understand.
“These findings are echoed among the professional adviser community, with two-thirds (65%) of regulated advisers AJ Bell surveyed agreeing there is unnecessary complexity and over 8 in 10 (84%) backing the concept of having one ISA product that covers the key existing benefits of ISAs.
“Addressing this complexity will support wider government efforts to increase the number of people investing for the long-term. Without simplification, there is a danger the battle for engagement will be won by people flogging high-risk, unregulated investments that all-too-often end up being inappropriate or complete scams.”
Increasing the ISA allowance
“Given the ISA allowance has been frozen at its current level of £20,000 since 2017/18, there is an argument that UK savers are long overdue a rise. However, we are sceptical of the benefits of linking any increase in the ISA allowance to an allocation to UK-based investments.
“If the goal is improving engagement and making it easier for new investors to understand how ISAs work, adding a new allowance linked to how that person’s money is invested risks further clouding the current picture.
“It is also vital investors take a long-term approach to investing based on their risk appetite – and crucially, that they diversify their portfolio. There is a danger in encouraging investing in a specific country that the benefits of diversification will be undermined.
