UK chancellor Rachel Reeves’ Spring Statement yesterday (March 26) hinted at significant investment reforms to come, possibly by the Autumn Budget.
As reported by FT Adviser, the government is looking at options for Isa reform to get more people investing into stocks and shares.
On the face of it, this looks like good news, and the provider-side of the financial services profession has raced to fill my inbox with suggestions for reforms.
These include ditching the Lifetime Isa, reforming how much people can invest into cash, or even creating a single, simplified tax wrapper that allows individuals to save into cash or stocks-and-shares, or both.
Another suggestion made by providers is to raise the annual allowance – currently set at £20,000.
I have yet to see any individual savers send their thoughts in. My instinct would be their thoughts are markedly different.
What we do know is people still predominantly favour cash. No amount of incentives can undo generational caution and low financial education.
I would hate for the Lisa to be ditched without an even better alternative that helps the youngest in society
What I know is that many 20-somethings (and even some of us Gen X) have invested in Lifetime Isas to help get them onto the housing ladder and to help provide a lump sum at 60 to help tide us over through to retirement/state pension age, respectively.
For example, three of the young people at my regular hairdressers have taken out a Lisa specifically to get the bonus and to help them buy their own first-time property.
Personally, I’m holding out for that lump sum at 60 to give me options for retirement (and to pay for that BIG HOLIDAY DURING TERM TIME that my husband and I will take by ourselves once our son is at university/old enough to pay for his own Deliveroo).
OK, this is anecdotal, but what does the data tell us?
Firstly, Lisa investment hit a new high in 2023. In the 2024/25 tax year (to the end of 2024), more people paid into Lisa than any other year; Hargreaves Lansdown reported a 24 per cent year-on-year increase alone.
The data also tells us, as beautifully set out in a news analysis earlier this week by FT Adviser (March 24) is that most people are unlikely to hit the full £20,000 Isa annual allowance, meaning a lift beyond this is simply a sop to the most wealthy; useless to the least.
I am all for simplicity; while I applauded the thought behind the now-defunct plans for a British Isa, we did not need yet another wrapper.
We may still have too many, but I would hate for the Lisa to be ditched without an even better alternative that helps the youngest in society and provides a commensurate financial uplift to the current 25 per cent bonus.
I would advocate against the £4,000 cap on cash Isas that has also been promoted by some providers and touted around the money pages of national newspapers.
A sensible voice, as always, is Steven Cameron, pensions director at Aegon, who seems to have his finger properly on the pulse of the British public.
While he also welcomes the government’s commitment to work with the FCA, he does not advocate reforming the Isa regime by curtailing cash allowances.
He explains: “This may not be the best way forward, potentially complicating the Isa regime while not helping consumers understand the trade-offs.
“When making this choice, it’s likely many individuals will be influenced by the level of interest available on cash savings and the performance and volatility of stock markets, both of which are hard to predict in the months and years ahead.”
While a higher proportion of customers with more than £10,000 to invest in more mainstream investments might help both UK plc and boost longer-term savings performance, people still need to understand risk.
Freetrade’s chief executive Viktor Nebehaj, agrees it’s time for “serious” conversations about Isa reform, but he states that Isas have not been created to increase participation in stock markets.
He says: “The tax incentives (while generous) are largely a draw to those already investing and generating capital gains or dividend liabilities over personal allowances.
“These incentives alone are not always enough of a pull to get a non-investor into the markets, especially given the fact that non-investors may not be fully aware of the tax treatment of investments before starting.”
It is time for government to stop listening to the voice of providers who stand to benefit most from forced changes to the Isa regime, and to the British people themselves who are investing billions each year.