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Treasury takes it to the limit as clamour grows

More flesh on the bones of Individual Savings Accounts could be revealed to us in a month or less. But the concept does not seem to have been sold well to the public, who have given it a big thumbs down.

According to a recent NOP survey for ad agency DMB&B Financial, 65 per cent of Pepholders do not want the ISA to replace existing products. Around 13 per cent of the 1,000 respondents believe that ISAs would "seriously harm" their financial position. Some 70 per cent want the Government to let them transfer all their Pep and Tessa holdings into the ISA, while half think that the £50,000 lifetime limit should be raised.

Prudential head of savings and investments Robert Higginbotham says the insurance giant&#39s own research has similar findings to NOP.

He says: "Those that do know about ISAs are very happy with what we have got, with around an 80 to 90 per cent satisfaction rating."

Higginbotham adds that people&#39s awareness of ISAs, despite much press coverage, is "very, very low". He says that among the target socio-economic groups, C1s, C2s and Ds, it is at around 30 per cent. This apparent consumer cold shoulder for ISAs has found echoes in the investment industry, which is unanimous in calling for the concept of the lifetime limit to be scrapped.

M&G says a lifetime limit will cripple ISAs and push costs up by 30 per cent compared with existing Peps. Fidelity agrees that the lifetime limit should go, arguing that costs to the Exchequer could be curbed by annual investment limits instead.

Prudential says it would prefer that the £50,000 limit was not there but does not feel it will be removed by the Treasury. Higginbotham says: "I would be quite surprised if it was removed."

With the deadline for consultation on ISAs already passed, the latest date at which an announcement will be made on the products will be in the Budget on March 17.

However, the investment industry may have to hold its breath for less than a month, as a statement could be made earlier about ISAs or a possible scrapping or raising of the lifetime limit. Higginbotham believes that the key points for the ISA will probably come in the Budget but that more detail on the rules may not come until the summer.

The NOP survey also revealed mixed news for IFAs. Around 36 per cent of respondents say they would look at buying an ISA through a broker compared with 23 per cent for fund managers and 34 per cent direct.

But the IFA vote was dwarfed by those opting for building societies, which came top with 71 per cent saying they would look at this channel. The banks also did well, with 53 per cent.

Higginbotham is not surprised by the top rating for building societies as many people still have much of their savings with them, with around £400bn on deposit.

Perpetual deputy chairman and marketing director Roger Cornick believes the findings reflect the framing of ISA questions as "savings" accounts rather than "investment".

He says: "If you asked people where they would prefer to buy equity investments, they would not say from a building society."

NOP discovered further doubts in the public mind over ISAs.

It found that they were seen to be too complex, with 74 per cent calling for the product to be simplified.

The Government&#39s suggestion of a monthly prize draw for ISA investors was largely rejected, with 68 per cent disapproving of the idea. This is perhaps surprising in a country where the National Lottery has proved such a success.

DMB&B Financial chief executive Andrew Porter says: "It is clear that the Government has not yet persuaded the consumer that the ISA is a good idea. We believe that this research highlights some key issues which need to be addressed, most notably the complexity of the ISA."

Cornick says: "The entire industry has been unanimous in condemning the complexity of ISAs."

But the public response has not been entirely negative. More than half the sample agree that the ISA would make it easier for them to save small amounts of money and that it could attract more people to the saving habit.

This is arguably a message upon which the Government can build to make ISAs more popular.

Higginbotham believes that the social groups being targeted by the Government with ISAs need to be given an incentive to save rather than having the tax disincentive removed.

He explains that many in the C1, C2 and D groups either do not save or do not pay much or any tax on savings.

If the more negative NOP poll findings are an accurate reflection of the public mood, then the Government has quite a task ahead of it in persuading investors that ISAs are a worthy successor to Peps and Tessas.

It could be time for spin doctors at the Treasury and elsewhere to dust off their boxes of tricks and work some PR magic.


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