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Platform AJ Bell has proposed the creation of one simplified ISA product to replace the six existing wrappers, with the government topping up savers’ pots for major one-off spending such as green home improvements.
In a paper co-authored by former AJ Bell CEO Andy Bell and sent to Chancellor Jeremy Hunt, the platform proposed a new ‘One ISA’ tax wrapper.
Many of the features proposed are similar to the existing regime. The One ISA would hold cash, funds and shares. It would start with an annual tax-free contribution limit of £20,000, although this would rise with CPI inflation every year.
One major difference would be the existence of top-ups to incentivise savings. This would see the government pay a 25% bonus up £1,000 a year on savings over a 32-year period, as long as the money was used for a ‘specific purchase’.
AJ Bell said this could include a first house purchase, as is currently the case for the lifetime ISA, but also other spending such as green home improvements, saving for long-term care, or certain professional qualifications.
This bonus would be paid at the point of purchase rather than when savings are accumulated, removing the need for the exit penalty currently imposed on lifetime ISA savers.
Bell, who is now a consultant for the platform he founded, said that the six existing ISA products were “too complicated”.
According to AJ Bell’s research, 49% of people think the different versions of ISAs make them too complicated, and 30% say they would save more in the products if they were less complicated.
FCA data suggests that in 2022, almost 8.6 million consumers held more than £10,000 of assets in cash to invest. The regulator has targeted a 20% reduction by 2025.
Bell said that this new system would also benefit providers, encouraging competition.
“This would make it easier for customers to compare just a single type of ISA product and switch between different providers,” he said.
A bonus on funds paid into the wrapper could be based on “ISA subscription years”. Subject to government consultation, these would be tax years where a minimum net investment is met.
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