Changes to ISA rules could be as beneficial as an increase in interest rates for savers

By Dr Ros Altmann

Piggy bank The past few years have been a savers' nightmare. With near-zero interest rates and inflation overshooting the Bank of England's 2% target, the value of their savings has been slowly whittled away. Then, to add insult to injury, the meagre interest they earn is taxed too. Saga has been calling for the Government to listen to the problems faced by savers and offset some of the damage.

 
Savers approaching or already in retirement are finding the money they set aside to live on in later life is not delivering the income they need.  It is vital for any economy to encourage people to save for their future, but if we punish those who have done so, it means younger people will decide it's not worth bothering.
 
So, I'm delighted that the Mail on Sunday has started a petition calling on the Treasury to help - at least a tiny bit - by allowing ISA investors to choose whether to put all their annual ISA allowance in cash, or in stocks and shares, or both, with free transfers between each. 
 
Current rules only allow half the annual £11,280 allowance to be put into cash ISAs.  The other half must go into stocks and shares, or it is lost.
 
The indomitable Jeff Prestridge has set up a petition calling for savers to be allowed to put the full £11,280 annual ISA allowance into cash if they wish to, rather than having to gamble half on the markets.
 
ISAs are the best option for tax-free savings (outside a pension).  However, it makes no sense to force older savers to gamble on stocks, or indeed younger ones saving up for a deposit on their first house.  They can't afford to take losses. 
 
I do not see why the Government should tell them how to save their money?  Surely, it should be up to individuals to decide what investments are best for themselves. 
 
It is hard to fathom what the rationale for these restrictions is anyway.  Stocks and shares ISAs can be invested wholly in foreign companies, so they may not even benefit UK firms.

Saga has been calling for this common sense change to be made and really hope that the Government will listen at last. 
 
Allowing an extra £5640 a year into tax-free cash savings would be a welcome boost to hard-pressed savers.  Just like an interest rate increase, it would boost their income.
 
For example, saving £1,000 in an account earning 3% interest pays £30 a year.  But basic rate taxpayers then lose £6 in tax and are only left with £24.  So that 3% interest is worth 2.4% after-tax. 
 
A 40% taxpayer, loses £12 in tax for each £1000 of savings, so the 3% interest rate is like 1.8%.
 
With inflation running at 2.6%, their money loses value each month.  But if they were saving in a tax-free cash ISA, they would keep the full 3% interest.
 
Making this change would be both sensible and popular.  A recent Saga poll showed two thirds of the over-50s favoured being able to invest their whole allowance in cash.
 
Abolishing these old-fashioned, arbitrary ISA restrictions would provide much-needed relief to struggling older savers and go some way towards compensating for the damage done by monetary policies designed to help borrowers and banks.
 
Please sign this petition and get as many of your family and friends as possible to do the same.  If we get 100,000 signatures, then Parliament may have to debate this issue and we want to bring it to MPs attention so they understand the strength of feeling among savers who have been so hard done by.  This is absolutely the very least the Treasury could do and it should be done as soon as possible!
 


  • J E Hayes

    Posted: Monday 22 April 2013

    I agree with Doug pipe. One comment on the Cyprus depositers position was that they were lending their money to the banks not investing;why are the savers of this country lending our money at interesr rates after basic tax of 1.6% we are informed that it needs 6 savers to finance one borrower; we could withdraw our deposits at practically no loss to us until the banks and building societies offered a more realistic interest .

  • duncan macrae

    Posted: Saturday 20 April 2013

    i totally agree savers (who have worked hard and done the right thing) are being cheated on a horrendous scale i,ve never known in my 64 years 40 of them saving to pay for my home and now kicked down with nothing on residual meagre savings for my old age if we all just borrow and say can,t pay where where does that lead us ??? answer to where we are now but people who did this suffer no harm to themselves but cause pain to all those who have saved i wont pay bills much longer it,s a muge game

  • Doug pipe

    Posted: Thursday 21 March 2013

    Its time we all closed our Bank accounts and removed our savings until we receive a rate which at least keeps up with the true rate of inflation.

  • William Blaby

    Posted: Sunday 3 March 2013

    Now that the B of E HAS ALLOWED THE BANKS TO BORROW AT VERY LOW RATES THE ISA RATES HAVE TUMBLED TO BELOW INFLATION.ALL SAVERS SHOULD TARGET ONE OF THE BIG 5 BANKS AND WITHDRAW ALL OUR SAVINGS.WE ARE NOT EARNING ANYTHING ON OUR SAVINGS, THE BANKS OUR USING OUR MONEY FOR FREE.

  • gareth

    Posted: Friday 8 February 2013

    What an absolute disgrace this is. I have always been a saver having been bought up by parents who had lived through the 30′s depression and WWII, they taught me be careful with money, never take on HP or buy things that you could not pay for outright, pay off mortgages asap, save wherever possible, be self-sufficient, be honest, be trustworthy, be loyal Unfortunately these values are not highly regarded in this country now comprised of spiv capitalists

  • john lloyd

    Posted: Monday 26 November 2012

    stop giving banks money so they make more profit looking after the rich and pay more interest to savers

  • Pam Carpenter

    Posted: Monday 19 November 2012

    Thank you Saga and Daily Mail! Let's hope the pressure you bring to bear will have the desired effect. This would go some way to mitigate meagre savings rates in the present climate.

  • P Phillips

    Posted: Tuesday 6 November 2012

    Well done Mail on Sunday.

  • Mr M Davies

    Posted: Sunday 28 October 2012

    Very sensible idea! Hope the policy makers will see the light!

  • Mrs Karen Davies

    Posted: Sunday 28 October 2012

    Excellent suggestion for those of us on small fixed pensions with a few precious savings!

  • Harry Field

    Posted: Sunday 21 October 2012

    The goverment are more interested in people who have not or will not pay tax Than good citizen who have paid it all there life. Not only the conservatives but labour & liberial is that why they only have millionaires as MP's roll on when we can have a UKIP, English party, or even national front at least they like the indigenouse populations

  • Carole Philip

    Posted: Friday 19 October 2012

    Allowing Pensioners, or those approaching retirement to save the full ISA allowance in a Cash ISA would be a great help, as we can longer take risks in long term shares.

  • Arn Dekker

    Posted: Sunday 14 October 2012

    Why can't banks and building societies offer similar rates on ISA accounts as they do on Bonds, in stead of taking their customers' tax allowances ? Increasing the amount of cash ISA savings mostly helps financial institutions.

  • David Lambie

    Posted: Saturday 13 October 2012

    A very common sense option for retired people.

  • Linda Batchford

    Posted: Thursday 11 October 2012

    What a good idea. I fully support it. It would really help us.

  • Steve Marsh

    Posted: Tuesday 9 October 2012

    With the government bleating on about getting people to make provision for their old age some incentive like this might just help.

  • Kathryn Hardman

    Posted: Monday 8 October 2012

    Yes - help people who have had the foresight to save for their later years. Otherwise we send completely the wrong signals to younger generations, and the government will in the end face a greatly increased expenditure when they become "senior citizens"!

  • Ann Steele

    Posted: Saturday 29 September 2012

    What is the point in saving when interest rates are so poor. I fully support this campaign

  • kath padley

    Posted: Thursday 27 September 2012

    I fully support this campain. Good luck.

  • Brian Johnson

    Posted: Tuesday 25 September 2012

    Great idea!This could encourage more people to save as, at any given time, they will know how much they have rather tham depending on market fluctuations.

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