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Government’s ISA reforms: Abbey and Invesco say more needs to be done

26 July 2007
The Government is due to make ISAs more attractive bv “increasing certainty, making the regime simpler and more flexible”, increasing how much people can save, and making them available indefinitely.

Kitty Ussher, Economic Secretary to the Treasury, this week laid Regulations that will come into force from April 2008, and see the annual ISA investment allowance go up to £7,200 from £7,000.

Of that £7,200 yearly tax free allowance, people will be able to save half in cash with one provider, and the remaining half can be invested in stocks and shares with either the same or another provider. The new regs will also see PEPs automatically turned into ISAs, allow people to transfer money saved in previous tax years from cash ISAs into stocks and shares ISAs and allow Child Trust Fund accounts to roll over into ISAs on maturity.

"The ISA has been successful in helping more people to save in a tax-efficient way. Over 17 million people now invest in an ISA, more than double the number who ever held a TESSA or PEP. These reforms - to come into effect in April next year - will build on the success of ISAs, making them even more attractive by allowing people to save more, and by being more flexible and simpler to use," explained Ussher.

Abbey is one of the biggest Cash-Mini ISA provider, and broadly welcomes the ISA reforms, in particular, the indefinite extension of ISAs and the option to automatically roll up a child trust fund into an ISA should give greater confidence in long term savings.

“We also welcome Government initiatives to allow people with existing cash-ISAs to switch to an investment that might provider greater longer term returns,” said Alexia Kilby, Head of Savings at Abbey. “In the past, the loss of the tax-wrapper would have been a significant barrier stopping this.

"However, it is disappointing that the Government hasn't taken the opportunity to simplify the regime by allowing the same investment limits in ISAs regardless of underlying assets. Despite encouraging reforms, ISA limits have failed to keep pace with inflation since ISAs launched in 1999. We urge the Government to further extend these limits to encourage long term savings."

And Rick White, Marketing Director at Invesco Perpetual, one of the UK’s largest PEP and ISA providers said “While the cash ISA limit rising by 20 per cent to £3,600 will be welcomed by the millions of people saving in cash ISAs, the 2.8 per cent rise for equity ISAs is less encouraging. Indeed, applying a 20 per cent rise in equity ISA limits would see an increase to £8,400 - £1,400 more than is permitted today.

“To make equity ISAs more attractive we had hoped that the Government would upgrade the limits, not only by a mere £200 but at least in line with inflation.”

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