Written by AJ Bell head of retirement policy, Tom Selby
AJ Bell has led calls for simplification of the ISA landscape and engaged constructively with government on how this can be made a reality.
It is ridiculous investors 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. Our research suggests this unnecessary complexity acts as a barrier to people saving and investing for the future, hampering their own financial prospects and those of the companies they might otherwise invest in.
If the government brings forward this review it could be a huge step toward a radical simplification of ISAs. It provides a real opportunity to develop long-term proposals centred around stripping away unnecessary complexity and creating a single, simple ‘One ISA’ product that incorporates the best features of the existing landscape.
Coupled with reforms designed to boost the financial help available to millions of Brits, this could create the foundations of an investing revolution in the UK. Given most investors display a significant ‘home bias’ when choosing their investments, that revolution should, in turn, help drive more capital to UK businesses.
The rule preventing ISA savers subscribing to more than one version of each type of ISA never made much sense. Ditching this rule removes one of the key blockers to more fundamental reform and would be an extremely welcome step in the right direction.
Background
AJ Bell has been a long-time advocate of radical ISA simplification. Earlier this year the business published its ‘One ISA’ policy paper, calling for radical ISA simplification combining the key features of the existing landscape into a single ISA product (full copies available on request). The paper included research with the public this year which revealed limited understanding of the current ISA landscape*.
Since then, AJ Bell has engaged with the Treasury and wider financial services industry to work through the practical challenges such radical reform would inevitably present.
There are currently six different versions of ISAs, each with slightly different aims and rules governing them. This complexity risks undermining a product that has proven popular with millions of investors since it was introduced over two decades ago. Research AJ Bell has conducted among both consumers and advisers supports our view unnecessary complexity in the ISA rules risks acting as a barrier to sensible investing.
For example, while over 70% of Brits are familiar with ISAs, less than half could correctly identify the main types of investment ISA and less than a third know the annual ISA allowance is £20,000*. Half of the individuals AJ Bell surveyed said the different versions of ISAs make them too complicated and that a single ISA product would make them easier to understand.
These findings are echoed among the professional adviser community, with two-thirds (65%) of regulated advisers AJ Bell surveyed agreeing there is unnecessary complexity and over 8 in 10 (84%) backing the concept of having one ISA product that covers the key existing benefits of ISAs**.
Addressing this complexity would support wider government efforts to increase the number of people investing for the long term. Without simplification, there is a danger the battle for engagement will be won by people flogging high-risk, unregulated investments that all-too-often end up being inappropriate or complete scams.
