The new ISA proposals aim to simplify ISAs and increase their flexibility. In a speech at the Association of British Insurers Saver Summit 2006 in London, Mr Balls confirmed that PEP schemes will be brought within the ISA wrapper, a change that many in the industry have asked for.
The mini/maxi distinction within the ISA will also be removed, leaving just two components, namely cash ISAs and stocks & shares ISAs. In addition, the government is proposing to allow consumers to transfer funds saved in the cash component into the stocks & shares component without affecting their annual investment limit.
Mr Balls said that he hopes removing this restriction will encourage more consumers to diversify their assets and invest in shares.
The proposals have been welcomed by many industry insiders, although it appears some believe that there is still room for improvement. For example, ISA and PEP manager Fidelity National welcomed the decision to restructure ISAs into two separate vehicles, and applauded the increased flexibility the transfer allowance will bring, but said that the annual limit still needs to be altered.
We still feel that the annual limit must be reviewed in order to encourage a higher level of long-term savings. This is critical to ensure that people make adequate provision for their financial needs later in life, commented Richard Wastcoat, UK managing director of Fidelity International. Fidelity urges the government to consider increasing these limits as a matter of urgency.
Meanwhile, the Building Societies Association (BSA) has urged that transfers in the other direction, i.e. from stocks & shares to cash, should also be permitted.
Anyone shifting their cash ISA into equities must be made aware that they cannot reverse the decision. Making transfers one-way-only, as the minister proposes, means that errors of judgment or bad advice could never be rectified, while still retaining the ISA tax exemptions, warned Adrian Coles, director-general of the BSA.
