A shake-up of Cash ISAs seems on the cards as the Government has given its clearest indication yet that it is looking to reform the system. That’s a good thing as it will encourage people to see ‘investing’ as different from ‘saving’!
As reported by online financial news platform Citywire, City Minister Emma Reynolds has told MPs the government is looking at ISA reforms but said that Cash ISAs remain an important resource for people.
As ever, there’s very little detail but certainly it seems as if this particular move will form some part of Government policy in due course and is not simply a speculative headline grabber for the financial media.
So what are ‘they’ planning? After City of London firms lobbied the Government calling for Cash ISAs to be scrapped and the tax breaks on them curbed, to help funnel the £300billion in them into market-based assets instead, the notion has not really gone away.
It was argued that money could see better returns for savers if it was invested in the markets, while supporting the City’s diminishing Stockmarket and boosting the UK economy. Not everything on ‘markets’ is high risk either and cash has risks – interest rates plummeting or indeed no interest at all and inflation eating-up the real value of your savings.
That could mean offering people alternative Market ISA options (stocks shares, bonds and funds essentially) or pension products.
There is speculation the Government is looking to reduce the £20,000pa tax-free Cash ISA allowance – ie what you may save each year without paying tax on it – to £4,000.
But in her speech to MPs, the City Minister would not comment on that speculation.
“We are looking in the round of what to do on ISAs. We are very interested in boosting the culture of retail investment, anything we do will be very carefully considered,” she said.
“I have cash savings myself and everybody, if they can afford to, would like to have some sort of cash savings as a financial buffer in case something goes wrong.”
She also said: “As part of the Pensions Review, we are looking at what more can be done to drive investment in the UK stockmarket, but that won’t be exclusive. To have a balanced portfolio, you really do want to be investing in lots of different places.”
No doubt you’re thinking she’s said a lot without saying very much at all and you’d be correct – but there’s an admission of sorts that something WILL happen with ISAs.
Not quite a predication but we wouldn’t be surprised if something isn’t unveiled in the Autumn Statement in October, which is when most major Government financial and tax decisions for the year are revealed.
It bears repeating we are not universally in favour of Cash ISAs for ‘investment’ because the balance of interest rates versus inflation means effectively, you’ll ‘lose’ money over the longer term when sensible investment in market assets is typically likely to give you a better outcome.
In any case, it is better to spread assets around – you don’t have to be all-in on one or the other.
Cash ISAs can play a part in your finances and the £20,000 allowance is a respectable sum to consider when allocating assets – it’s not exactly peanuts.
As ever and if this encourages more people to take independent advice, then excellent, for their own holistic benefit too: Speak to ourselves or your own Independent Financial Adviser (IFA) before making any decisions. One thing to think about is that IF the Chancellor reduces the allowance, the new one is likely to apply next April.
