People are drowning in ISAs – why we need simplicity

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I’ve recently been trying to help my children get onto the housing ladder.

They were all looking at ISAs to help them save a deposit, and they’ve all decided on different options.

Which ISA suits your needs?

One of my children decided to go for the Help to Buy ISA, which gives people saving for a first home a 25% boost to their savings when they buy a property worth up to £250,000 (or up to £450,000 in London).

This ISA is due to be rolled into the Lifetime ISA, or LISA, which my other child went for. A girlfriend of a third member of the family decided to wait for new LISA providers to come in. None did.

Watching the younger generation grapple with their savings in various ways was eye-opening. They spent a lot of time weighing up options and trying to understand what each one would mean for their plans. None felt satisfied they’d made the right choice for them.

ISAs have certainly been tinkered with since they were introduced. Most changes have been made with the best intentions, but they’ve caused so much unnecessary confusion. ISAs were specifically designed for over-18s, for example, but we now have a Junior ISA. Over-16s can now open both a Junior and a normal adult cash ISA.

The confusion surrounding ISAs

There are now eight different kinds of ISA, each with their own strengths and weaknesses. It’s a lot to weigh up; I’ve worked in the banking sector in senior finance roles, and even I get confused by them. No wonder the UK’s savings ratio is actually going down at the moment – an £18bn reduction.

We ran a working group of key industry figures to discuss ISAs and how they could be improved. The group agreed that there was a real need for the government to look to the long term and seek to simplify the situation. The phrase ‘everything ISA’ was used at that meeting to describe a wrapper into which existing ISA products could be folded, allowing people to monitor their savings within a single portal, complementing the different stages and journeys that they are undertaking in their lives.

It was all quite timely. Once made public, our recommendations really struck a chord with many people. I wrote to the Chancellor, imploring him to consider taking action. I expect he has a lot on his plate at the moment, not least Brexit, but it will be interesting to see what his response is.

Read AAT’s review of the ISA regime here.

This article first appeared in our May/June 2018 issue of AT magazine.

Mark Farrar is the Chief Executive of AAT.

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