The government has announced a series of moderate changes to the ISA system but, according to AJ Bell, it has failed to deliver radical simplification to benefit savers and investors (Autumn Statement 2023 (publishing.service.gov.uk))
Key ISA reforms announced in the Autumn Statement today (to be implemented in April 2024) include:
- allowing multiple subscriptions to ISAs of the same type every year;
- allowing partial transfers of ISA funds in-year between providers;
- removing the requirement to reapply for an existing dormant ISA;
- expanding the Innovative Finance ISA to Long-Term Asset Funds (LTAFs) and open-ended property funds;
- permitting ‘certain fractional share contracts’ as eligible ISA investments;
- increasing the account opening age for adult ISAs to age 18.
- In addition, the ISA (£20,000), Junior ISA (£9,000) and Lifetime ISA (£4,000) limits will be frozen at their current levels in 2024/25
According to AJ Bell, the Government’s failure to address complexity at the heart of the ISA system represents huge missed opportunity.
Tom Selby, head of retirement policy at AJ Bell, comments:
“The chancellor has chosen to tinker at the edges rather than pursue radical ISA simplification for the benefit of savers and investors. It is ridiculous Brits are currently faced with a choice of six types of ISA when deciding where to invest for the future, with different rules and allowances further clouding the picture.
“Although ISAs have become a recognisable and trusted savings vehicle, complexity and lack of understanding remains one of the biggest barriers to investing. For example, only half the people in our research could correctly identify the main types of investment ISA and less than a third know the annual ISA allowance is £20,000*.
“Today Jeremy Hunt had an opportunity to tackle this complexity head-on in his second Autumn Statement. Sadly, he appears to have bottled it. It is also disappointing the ISA allowances will remain frozen for another year – although at least the wrong-headed ‘GB ISA’ proposal many have been pushing appears to have been consigned to the policy dustbin.
“Allowing people to pay money into more than one ISA of each type in a tax year is a sensible move, making it easier for investors to try out different stocks and shares ISA providers, while cash savers could open multiple new ISAs as new deals become available.
“However, this is hardly an earth-shattering change in its own right. It should instead have been the foundation upon which more fundamental simplification was built.
“AJ Bell has long called for both pensions and ISAs to be made as simple as possible, in the latter’s case by combining the key features of the current landscape in a single ‘One ISA’ product. This is a reform both consumers and advisers support, and we will continue to argue for sensible simplification across financial services.”
Long-Term Asset Funds
“While Long-Term Asset Funds (LTAFs) may work for institutional pension investors, it is hard to see the case for making them available to ISA customers. We are talking here about an illiquid investment potentially being promoted in a world where people choose the product specifically because of the flexibility it provides.
“While any investment should, of course, ideally be long-term, life often gets in the way of people’s best-laid plans. Any investor considering investing in illiquid assets such as LTAFs through their ISA needs to fully understand what they are getting into and the associated risks.”
*Data collected by AJ Bell via Opinium. Survey of 2,000 UK adults conducted March 2023.
