Nationwide Building Society has called on the Chancellor to allow ISA holders to switch their savings from equity to cash, ahead of the Pre-Budget Report that will allow switches from cash to equity.
From April 2008, ISA customers will be able to switch the money they have tied up in a cash ISA to a stocks and shares one, without being subject to penalties, but Nationwide believes that people are just as likely, if not more so, to want to switch their investment from stocks and shares to cash because of fluctuating faith in the stock market.
There are more than 16 million ISAs in the UK, illustrating that many people do take advantage of the tax-free savings they offer, but attitudes change, Nationwide argues, and therefore people should have the freedom to move their investment about as they see fit without suffering a loss of interest.
Rather than causing savers to lose their tax-efficient wrapper, as switching currently does, Nationwide had put forward that ISAs should take a leaf out of the Child Trust Fund’s book, which allows parents to switch their CTF investment from cash to equity and vice versa without incurring penalties.
Matthew Carter, divisional director for savings at Nationwide, says: “ISAs need to be simplified to make them easier for investors to understand. We think savers would be more encouraged to make full use of their ISA allowances if the system was simple to grasp and the differences between the cash and equity options removed.
“From April 2008 the ISA system will allow people to transfer cash ISAs to equity but not the other way around, so is not as flexible as it could be. Savers should be given the option to move all or part of their investments between cash and equity, as consumers should take advantage of both allowances. Additionally, people who are comfortable exposing their savings to the stock market now, may not be in ten or twenty year's time. So the lack of flexibility to switch to cash in later years may deter them from investing in equities now.
“While equities should be seen as long-term investments, we believe it is important that consumers have the option to switch to cash if their attitude to risk changes. The Government has got it right with Child Trust Funds and the Chancellor has an opportunity to make improvements to the current ISA regime to bring them into line.”
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