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