Radical reforms to pensions tax relief were intended to be the centre piece of this year’s Budget. But they were ditched at the last minute, having become too hot to handle in light of the Tories’ backbench rebellion over Brexit. The chancellor’s decision to super-charge Isas instead caught most people off guard and few saw the Lifetime Isa (Lisa) coming. But looking closely at Osborne’s Isa revolution over the past six years, the Lisa was the natural next step. Further changes are coming, I predict, which advisers need not fear but should be prepared for.
Since 2010, the annual Isa limit has increased by 112 per cent, from £7,200 to £15,240 today and it will increase further to £20,000 in 2017. Isas have been simplified, with more choice over the mixture of cash and stocks and shares held within them. Savers can take out their Isa money and replace it within the same tax year and a new peer-to-peer lending ‘Innovative Finance Isa’ will launch in April.
It is clear that George Osborne believes Isas have a bigger role to play in the nation’s savings and I fully agree with him. I support the changes and we campaigned for them. Earlier this year, True Potential put forward detailed proposals for an enhanced Isa, with a 25 per cent top-up on contributions and a higher annual allowance. Our view is that these measures go with the grain of consumer behaviour and will encourage more people to put money aside. Savers voluntarily ploughed £20bn more into their Isas last year compared to 2014, but it took an Act of Parliament to make people save into a pension under auto-enrolment. The chancellor introduced both the top-up and the higher allowance that we put forward, so he too has recognised this trend.
Enhanced Isas can happily coexist with pensions, giving savers the best of both worlds. Advisers have nothing to fear from a nation that is incentivised to rediscover its appetite for saving and investing. With a suite of Isas now sitting beneath one allowance, advisers have an opportunity to develop new personalised investments strategies with clients, helping them to reach their goals as efficiently as possible with products that are already popular.
So where will the chancellor go next with Isas? He has consistently increased the annual allowance and I expect that we will see the Lisa grow from it’s £4,000 starting limit. With the Help to Buy Isa, Lifetime Isa and Innovative Finance Isa, there is a clear policy to be more creative, but with that comes the risk of unnecessary complexity. Integration with workplace savings is the next step and we may eventually see a simple one-stop Isa that can be used for any purpose with a top-up on the first £10,000 and an annual limit of £25,000 or higher.
Simplifying Isas by rolling them all into one super-Isa would complete the revolution.
David Harrison is managing partner at True Potential
