Cash ISAs still at risk despite Chancellor’s pledge – Daily Business

Rachel Reeves has confirmed that the £20,000 ISA allowance will remain, but analysts believe she may still cut the allowance for cash-only accounts.

The Chancellor has been rumoured to want a change in the ISA landscape as part of her desire to get people investing in the economy, and that suggests more support for stock market investments.

Cash ISAs are one of the most popular products for many banks, held by 18 million people, who added £50bn to their savings pots last year. 

But the Chancellor is keen to get savers looking to equity markets as this would also help finance British businesses.

Money experts say there are other options besides this binary choice, with one saying it is time to combine ISAs into one simple product.

In an interview Ms Reeves said: “I’m not going to reduce the limit of what people can put into an ISA, but I do want people to get better returns on their savings, whether that’s in a pension or in their day-to-day savings.

“And at the moment, a lot of money is put into cash or bonds when it could be invested in equities, in stock markets, and earn a better return for people. But I absolutely want to preserve that £20,000 tax-free investment that people can make every year.

Damien Jordan, founder of Financial Interest and Damien Talks Money says: “I don’t think that people avoid investing in the markets because they find the cash allowance more alluring. I believe that people don’t invest because they don’t understand it and they see it as risky.”

He says the solution is to educate people about investing in equities. Jason Hollands, managing director of online investment platform Bestinvest agrees, buit adds that there is pressure from within the City for changes to stocks and shares ISAs that would stimulate investment in equities.

Investment platform AJ Bell believes a lower Cash ISA allowance will not achieve the government’s objective of shifting Cash ISA money into UK equities and instead will only introduce complexity and cut tax advantages for cash savers.

Instead, it advocates simplifying the ISA landscape to boost retail investing and support UK plc in the process.

Rachel Vahey, head of public policy at AJ Bell, says: “The Treasury will be looking at a range of solutions in their quest to get a better balance between cash and equities in ISAs.

“A lower limit for just Cash ISAs, though, is likely to be a lose-lose for everyone. It will fail to encourage the behaviour outcome the Treasury is looking for.

“Instead, AJ Bell research shows only one in five Cash ISA holders would migrate to investing in the UK stock market if the Cash ISA allowance was reduced or abolished, with the majority (51%) saying they would simply stick the money in a taxable savings account and a further 24% indicating they would opt for National Savings & Investments (NS&I) products such as Premium Bonds.

“Furthermore, a different Cash ISA limit would introduce more complexity into an already complex ISA landscape, potentially cutting off transfers between Stocks and Shares and Cash products.

“Simplifying the current ISA framework by merging Cash and Stocks and Shares ISAs to create a single main ISA product would remove much of the friction of the current framework, meaning Brits can change their ISA investment profile simply and easily, dialing up their investment exposure as their life evolves and their saving horizon and life goals change.

“Simplification, together with the introduction of targeted support – provider-led guidance to help people make these tough decisions – could truly provide the foundation for the retail investing.”