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Do ISA changes go far enough?

This April will see the government making significant changes to Individual Savings Accounts (ISAs) in an effort to make this already popular form of tax-free saving more accessible. The principle changes will be that the maximum total amount investible in an ISA will be raised from £7000 to £7200 (with the cash ISA allowance going up from £3000 to £3600), investors will also now be able to switch money from cash ISAs to shocks and shares ISAs but not vice-versa.

The question now being posed by some is do these changes go far enough? Ewan Edwards, head of Savings at Alliance and Leicester has said that “While the changes due in April this year are certainly steps in the right direction, we believe there are still issues that need to be addressed”

Alliance and Leicester’s concerns are based on a recently conducted ISA survey showing that many savers are not completely satisfied with the amount of flexibility ISA saving affords them.

A particular concern is that while this year’s changes will allow those with cash ISAs to transfer funds into equities it still won’t be possible to do the reverse and transfer Equity ISA funds to a cash ISA. The Alliance and Leicester report indicates that over half of ISA investors are concerned about their stock market investments and suggests that investors should be able to protect their savings by transferring them to a safer Cash ISA if they have worries about market volatility.

This call for greater flexibility in ISA saving also extends to a proposed freeing up of the regulations on withdrawing and paying in; as things stand at the moment the annual allowance for ISAs is fairly rigid, once you’ve withdrawn funds that portion of your allowance is effectively lost. Alliance and Leicester propose that savers should have the freedom to withdraw and top up their ISA savings as much as they like as long as they stay within their tax limits for the year.

In the A&L ISA report Ewan Edwards argues that because ISAs were originally conceived by the government to encourage saving “the structure must therefore be straightforward enough for the man on the street to digest”. Given that a surprising number of people were found not to know what the current limits for ISA investment are the report also recommends that a more memorable maximum investment figure is set and that more is done to “communicate the basic principles and benefits of ISAs”.

You can find out more about Alliance and Leicester savings accounts and ISAs on their website and for a useful guide to ISA investment read An Introduction to ISAs.

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