The hugely complex individual savings account (ISA) regime needs to be overhauled to create a more streamlined, simpler savings system to encourage savings rates and reduce complexity, says a working group set up by the Association of Accounting Technicians (AAT) and cross-bench MPs
The group, which includes senior figures from the Conservative, Labour and SNP parties plus experts from the savings industry and accounting profession, is urging the government to merge existing ISA products into a simple wrapper called the ‘Everything ISA’, and allowing individuals to monitor their savings products within a single portal.
Other recommendations include establishing the Everything ISA at the same time as a baby’s birth is registered, ensuring future generations are encouraged to save.
When opening any savings account, a tick-box option stating ‘add this to your ISA?’ should be provided, further increasing awareness and prompting consideration of saving in an ISA among adults.
It is also calling for the current annual savings limits to be scrapped in favour of a £1m lifetime contributions allowance.
In its report the working group says the introduction of more and more ISAs, the fact they interact poorly with each other, have a variety of different savings limits as well as different rules and requirements, has made the ISA savings landscape overly complicated and .
This acts as a disincentive, rather than an incentive, to save while the group claims the original objectives of several of the existing ISAs do not appear to be met either.
For example, stocks and shares ISAs were supposed to encourage those without shares to invest, are almost exclusively used by people who would buy shares anyway. Similarly, justifying the Junior ISA is difficult when existing child savings accounts already meet their savings requirements and there is usually no income tax to pay on these.
Mark Farrar, AAT chief executive, said: ‘There used to be a couple of ISAs that were simple, tax efficient savings vehicles and were widely understood by the general public. We now have a system where there is an ISA for every day of the week, offering unnecessary complexity, bureaucracy and confusion.
‘ISA simplification would make their availability and features more widely understood, and ultimately play a greater part in addressing the country’s terrible savings ratio. As such, this report offers a worthwhile, credible and thought-provoking alternative to the current muddied landscape, supporting AAT member calls for greater clarity and simplicity in the financial system.’
Time for change: a review of the Individual Savings Account (ISA) regime
Report by Pat Sweet
