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Andy Bell, the co-founder of the AJ Bell investment platform, has called for a radical Isa overhaul to streamline tax-efficient savings.
Bell spoke to the Financial Times this week as the company proposed scrapping separate cash and stocks and shares Isas to create a single new offering.
It also wants to reform the Help to Buy and Lifetime Isas, which offer a tax-free bonus to people aged under 40 saving for a home. The platform is also urging the abolition of the Innovative Finance Isa, a type of peer-to-peer loan.
Bell said plans had been presented to chancellor Jeremy Hunt and reflected an ambition to simplify Isas to motivate savings and investment. While he acknowledged the plans could narrow consumer choice, he insisted that the range of products currently on offer were too complicated.
“The proliferation of Isa products worries me. If you’ve got six Isa products to choose from, you almost give up,” said Bell. “If you were starting with a blank sheet of paper you wouldn’t design what we’ve got today.”
Bell said that the Treasury was “alive” to these concerns and recognised that the savings gap could not be addressed without making products more accessible. The Treasury offered no immediate response.
Fewer than half of all Britons said they knew that stocks and shares Isas existed, according to polling commissioned by AJ Bell from Opinium. In a survey of 2,000 people in March it found that two-thirds of individuals were unfamiliar with Isa tax benefits.
Bell, who stepped down as chief executive of FTSE 250 group AJ Bell last June, has remained a consultant at the company and is fronting the platform’s Isa proposals.
The AJ Bell paper suggests that the proposed changes would support the Financial Conduct Authority’s ambition to encourage more consumers to invest their long-term savings rather than hold cash, with around 8.6mn people holding more than £10,000 of investible assets each.
“You don’t have a cash pension and you don’t have a stocks and shares pension,” said Bell. He said individuals were left misunderstanding the specific types of Isa and this was masking the key selling point for savers and investors — the tax-free benefits.
The adoption of a single Isa product would likely benefit platforms such as AJ Bell which offers a variety of investment services including cash options. By the same token, the plans could disadvantage banks and building societies which focus on cash Isas, and offer higher interest rates on cash than platforms.
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Some 8mn cash Isas and 3.5mn stocks and shares Isas were opened in the 2020-21 tax year, according to HMRC. The gap has narrowed in recent years — in 2010 there were 12mn new cash Isas and 3mn investment Isas.
Proposals restricting individuals to holding funds with a single Isa provider at a time may encourage more people to migrate from cash Isa providers to those offering more options.
AJ Bell has also proposed changes to the Help to Buy and Lifetime Isas, which have been criticised for being inflexible and for being capped at too low a level to support purchasers in expensive areas, such as London. Help to Buy Isas are now closed to new entrants, but those already signed up continue to save into them.
The platform has recommended that the tax-free bonus in these two schemes, which are currently paid up front, is delivered, later, when a home is bought. This would allow future chancellors to amend the schemes to permit other potential uses, such as old age social care.
Noting the growing volume of complaints about Lifetime Isa penalties, Bell said the current system was applying bonuses with a “velvet glove and punching [savers] in the nose if they want their money back”.
The AJ Bell proposals also seek to rationalise Junior Isas by incorporating them into the single Isa with a lower limit. AJ Bell said this would deal with a quirk which meant teenagers aged 16 and 17 had a £29,000 limit spread across a junior and adult Isa, compared to £20,000 annually for adults.
“The Isa is cradle to grave . . . we’re certainly not suggesting scrapping the Junior Isa. We’re saying that it’s a single Isa [and that] how much you can pay in depends on your age.”
AJ Bell also calls for the scrapping of Innovative Finance Isas. The product, launched in 2016, represents a tiny fraction of the overall Isa market and are seen as too risky for most savers. Bell said: “There’s isn’t any place for P2P loans in an Isa . . . There needs to be a control on what people do with the money.”
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