The chief executive of investment platform AJ Bell has called on new chancellor Sajid Javid to simplify Isa rules to close the savings gap.
Andy Bell says Isas have become “unnecessarily complicated” and the complexity is a barrier to people saving more.
In the open letter, Bell writes: “As the newly appointed chancellor I believe you have an opportunity to radically simplify the rules around individual savings accounts (Isas) which, along with pensions, are the main vehicle people in the UK use to save for their futures.
“Isas started life as a very simple, tax efficient savings product. Over the years, various changes and additions to the product have made them unnecessarily complicated, with at least six variations in existence depending on how you look at it. People now have to choose which Isa suits their specific needs and often they can’t decide, which leads to them doing nothing and not saving.
“We believe a much simpler system, based around a single Isa product would mean that the only decision people need to make is to open an Isa and start saving. A single Isa can still cater for all the outcomes of the existing versions but without requiring the customer to make the decision when opening an account.”
AJ Bell has also published a policy paper “Isa simplification – one Isa” alongside the letter to set out its vision for what it believes would be a “positive and popular change”.
It says the move could be implemented in a way that is “cost neutral” to the government and would be welcomed by financial advisers, ISA managers and consumers.
The policy paper has been drafted by AJ Bell technical director Peter Hopkins who led the pension simplification project at HM Revenue and Customs.
In the document, Bell says: “Through multiple government interventions we now have at least six variations of Isas which all aim to cater for slightly different customer needs. Customers, and even their financial advisers, can struggle to work out which one is right in any given set of circumstances and too often this results in people doing nothing or making the wrong choice.”
Hopkins says the company has started with a three-pronged objective:
- Simplify Isas into a single Isa product to encourage people to save more
- Do it in a way that won’t cost the government more
- Ensure an easy transition to a single Isa product
He adds: “The core Isa product is very simple. However, over the past decade or so we have seen a number of new iterations dreamt up by politicians looking for headlines.
“The most recent of these, the George Osborne inspired Lifetime Isa, is a classic example of product over-engineering.
“Use it for a house purchase (we already had Help to Buy Isa) or use it for retirement (we already had pensions); use it for anything else and you get hit with a pernicious exit penalty.
“It’s too complicated.”
He puts forward a solution of rolling back the existing six-legged Isa regime into the “original template” of a single Isa.
AJ Bell acknowledges some “regulatory alignment” may be required as part of the proposed simplification. It has also sent a copy of the letter to the FCA.
The company says it is willing to “invest as much time and resource” as the government, HMRC and the FCA require to explore the opportunities presented by the proposals.
Sajid Javid was given the chancellor job in Boris Johnson’s cabinet reshuffle when he took over as prime minister from Theresa May.
Other ministerial and government appointments to the Treasury include:
- chief secretary – Rishi Sunak
- financial secretary – Jesse Norman
- economic secretary – John Glen
- exchequer secretary – Simon Clarke
Meanwhile Amber Rudd kept her job as secretary of state for pensions and Guy Opperman was reappointed as pensions and financial inclusion minister.