But although the increase offers a 40 per cent increase in the amount of money that savers can shield from the taxman, there seems to be a lack of awareness among many of the potential beneficiaries.
Saga Group chief executive Andrew Goodsell says: “Isas are a vital savings vehicle but more needs to be done to ensure people make the most of the benefits available. We urge the over-50s to take a closer look at their savings and investments and to research the Isa available to them, especially when the limits are increased on October 6.”
Saga suggests that only 5 per cent of people over 50 know what the new Isa limits will be, with 40 per cent aware there is to be an increase but unsure of how much.
CBK Colchester principal Peter Chadborn says: “I think that most people are aware of the increase, they just do not know by how much.”
Many IFAs are reporting a rise in enquiries from clients, prompted by the Isa rule change and the change also offers an opportunity for IFAs to market themselves positively to clients.
Thameside director Tom Kean says stockmarket gains of recent months have helped stimulate client interest in the rise but it also helps being able to speak to clients about positive changes, rather than an increase in income tax or a reduction in pension tax relief. He says: “It makes a change to be able to talk to a client about a good news story for a change.”
Chadborn says: “It is generating discussions with our clients, which is always a good thing.”
Many IFAs are adopting a proactive approach to talking to clients, particularly those who have used their full Isa allowance in previous years.
Kean says: “We have been analysing our records and contacting clients who have used their full allowance or close to it previously. We are writing to them to tell them about the changes and how they affect them. For the less than well funded, a more suitable letter is going out informing them of the changes.”
But simply changing the limit will not change many people’s attitudes to saving. Unbiased.co.uk recently released figures suggesting that £144m is paid unnecessarily in tax every year in unused Isa allowances, with 6.2 million people choosing to save in a standard deposit account rather than through a cash Isa and 1.7 million people holding equity investments directly rather than through an Isa.
Unbiased.co.uk chief executive David Elms says: “As savings returns continue to dwindle in this low-interest-rate environment, it is more important than ever for consumers to be astute when it comes to managing their savings and make sure they are not paying unnecessary money to the taxman.”
Even for people who use their annual allowance, the change to the limits may not substantially change their attitudes to saving.
Chadborn says: “There is a huge proportion of investors out there who happen to invest £7,200 a year. When the limit is changed to £10,200, they will write the cheque for that amount. Will this encourage people to save above that? Absolutely not.”
Despite the rise in the Isa levels, the problem of remuneration remains for IFAs. Advisers want to offer a complete service for clients but the amount of time spent on Isas for relatively small investments mean it is hard to make it worthwhile.
Premier Wealth Management managing director Adrian Shandley says: “The trouble is that the increases are so low they do not warrant the amount of fees and compliance that you have to put in. On a commission basis, if a client invests another £3,000, the firm will only earn £90. If you do it on a fee basis, it is not viable because you are going to be charging around £300 which will kill off any modest Isa contributions. We are writing to clients and they can invest more or, if not, we can do it when we see them at the end of the tax year as a part of our ongoing review service.”