The admin headache caused by the age restriction to the tax wrapper has caused concerns from the moment it was announced in this year’s Budget and it is unlikely that the situation will be resolved. Providers have been in discussions with the Investment Management Association and meetings are being held with the Treasury but, despite many groups’ best efforts, it is unlikely that the temporary age restriction will be reversed.
While universally, providers and advisers alike are positive over the rise in the maximum Isa limit, the temporary age restriction is causing problems. The admin difficulties in handling the change are a big part of the issue but not the whole problem.
Cofunds head of propositions Verona Smith says the platform is already getting a lot of enquiries from clients about the age limit and are looking for guidance. Until the Government releases further clarification following the May 20 consultation deadline, there is little that can be said of any certainty.
Of the questions being asked is how the age limit will work in practice. For instance, do clients need to have turned 50 before October 6 in order to be eligible for the £10,200 limit?
Smith says Cofunds believes current interpretation of the draft guidance would suggest that an investor has to be 50 years old before he or she can make the additional investment. She says: “This means, for example, that an investor who turns 50 on, say, November 5, 2009 will not be able to invest an additional amount on October 6 but will have to wait until their birthday on November 5.”
What of direct debits? Smith says the assumption currently is that: “Monthly subscriptions can be amended as long as the £7,200 limit is not exceeded prior to October 6 and, after that date, is not exceeded before the investor turns 50.”
Already, clients are looking to start to increase their monthly allocations to accommodate the additional £3,000 but can they? And if they do, will a new application be required once the new limits are implemented? And if they do need to sign a new Isa, how many will do it? Already, IFAs contend each year with making sure that annual allowances are utilised. Will they now battle with ensuring clients are in place, with new applications signed, by their 50th birthday?
While these questions may be addressed once the final regs are published, it still does not negate the biggest impact that the age limit presents – admin difficulties. For advisers, this burden is not expected to outweigh the selling and advising opportunities that the £10,200 limit offers. But for providers the headache and costs for such a temporary system mean there could be some groups that are not ready in time, some which have to manually process applications – slowing up investment times – and some who choose not to offer it at all.
From an admin standpoint, the time and cost to change Isa systems for such a short period is frustrating and costly. How prepared providers, wrap platforms and administrators will be when the change goes into effect on October 6 is largely down to how their existing systems operate – meaning some will have to make massive alterations while others may just need to tweak their programs. Platforms say they will be ready come the October 6 no matter what – even if it means they have to resort to manually handling Isa applications. And when things are handled manually, the chances of errors occurring increases and as yet there is no guidance on how or who will be held accountable in unwinding scenarios.
Nucleus chief executive officer David Ferguson says its systems are new enough that the extra line of code required to validate applications based on age – a process that will be new to Isa systems – should not take too long. Cofunds also believes it will have the changes in place on time but admits the alterations to back-office systems could take more than a month to implement so the sooner the final regulations are released the better.
Ferguson says the benefits of the age limit outweigh the headaches involved for Nucleus as it has many clients within the affected age bracket. Still, he agrees that is not necessarily the case for all Isa providers, noting that direct providers may struggle the most.
Some providers may just opt not to bother with the change at all and instead wait out the six months until the £10,200 allowance applies to everyone. But then there could be treating customers fairly implications of such an approach, he says.
That said, the very notion of an upper age limit giving more beneficial terms to those aged 50 and above could in itself be questioned as a TCF concern, one that the Government appears to be overlooking.
Smith also notes that some of the frustration of such a temporary rule is the knock-on effect it has on the existing projects. Costs and time to alter systems takes time away from other projects designed to make life easier for advisers and their clients, she says: “What else does this stop us from doing? New developments which could benefit clients keep getting pushed back because of situations such as this.”
Other issues arising from the Government’s plans could see increased competition among advisers and platforms. Already, platforms have had queries from intermediaries as to whether or not there will be any special incentives on offer to encourage clients over the age of 50 to use this short-lived advantage. Some advisers may look to rebate commission to encourage the additional Isa inflows while others may find that the added inflows for such a short timeframe do not make it worthwhile.
Whatever the outcome of the final regulations are, there is no denying the opportunities that the higher Isa limit may offer. However, it also remains to be seen just how it will work in practice and whether or not the marginal benefits outweigh the myriad of issues that the Government’s plans has created.