ISA changes receive muted welcome

isa33The announcement in the Budget that the limits on ISA accounts are to rise in line with inflation has been met with a mixed reception.

The Chancellor confirmed that, as from 6 April, savers will be able to invest up to £10,200 in cash and equity ISAs.

The new, improved limit had been confined to savers aged 50 and over since last October but is now open to everyone.

Half (£5,100) can be invested in a cash account and the remainder in a stocks and shares account, or the full amount can go into a stocks ISA.

Mr Darling also announced that, in future, ISA limits will change annually in line with the Retail Prices Index rate of inflation.

The limits will be calculated according to each September’s RPI figure. The amounts will be rounded up so that they are divisible by 12, making it easier for savers to work out their contributions.

But with inflation forecast to remain depressed, the uplift could be minimal.

Andrew Hagger, of the comparison website Moneynet, said: “This is a token gesture that is likely to cost providers more to administer than it will actually deliver to savers. Focusing purely on the cash element of £5,100, if the next inflationary increase is, say, 2.5 per cent, then the allowance will increase to £5,227.50.

“Savers who put this extra £127.50 allowance in an ISA paying 3 per cent will earn an extra £3.83 in interest as opposed to a normal savings account paying 3 per cent where they will receive a net return of £3.06. The tax-free benefit for a full year would, therefore, amount to 76p.”

The Tax Incentivised Savings Association (TISA), however, was more upbeat.

Tony Vine-Lott, TISA’s director general, said: “The big uplift in subscription limits this year is extremely welcome, but we have long argued for a regular increase in ISA subscription limits, and this decision allows savers and the industry to plan ahead with certainty.”

About 19 million people have ISA accounts, totalling £270 billion in savings.

This entry was posted in Personal Financial Advice, The Budget and tagged , , , .

Leave a Reply