‘Prioritise ISA reforms to support low and middle-income earners’
Autumn Statement: Prioritise ISA reforms to support low and middle-income earners, Moneybox urges.
As the Chancellor readies to address the nation in his Autumn Statement on the 22nd November, Moneybox, the saving and investing platform that supports more than 1m customers across the UK (avg. age 33) to save, invest, buy their first home, and build wealth for their future, urges the Chancellor to prioritise ISA reforms that support low and middle-income individuals.
Notably, it calls for the Chancellor to review changes that will help build financial resilience and encourage positive saving and investing behaviours for those earlier in their financial journeys.
With many ISA proposals focused on rewarding consumers at the top end of wealth distribution, Moneybox calls for positive change to support wider segments of the population – not just those who can max out their ISA allowance.
With this in mind, Brian Byrnes, Head of Personal Finance at Moneybox explores key areas of reform ahead of the Autumn Statement:
- Futureproof the Lifetime ISA property price cap
“The LISA property price cap currently allows people to use their savings towards a first time property valued at £450,000 or less. While less than 1% of Moneybox LISA savers have been affected by the property price cap to date, if the price cap had risen in line with house prices since its introduction in 2017, it would stand at £560k today.
“By introducing an index-linked price cap subject to an annual review, we believe the government can provide much-needed reassurance and peace of mind to LISA savers across the UK. Not only this, but it would help to instill confidence in the thousands of younger people embarking on their LISA journey today”
- Introduce an annual “Emergency Withdrawal Allowance” for the Lifetime ISA
“Under current Lifetime ISA rules, if an individual withdraws for any reason other than to purchase a house, or to contribute towards retirement, they’ll be subject to a 25% penalty. While 41% of Moneybox LISA savers said this penalty helped them commit to their savings goal, it’s important to get the balance right between rewarding the efforts that LISA users are making to their long-term savings, and not penalising people for emergencies.
“Furthermore, we believe that knowing some funds can be accessed in an emergency without penalty will actually help savers commit more to their long term goals.”
“This is why we’re calling for the Chancellor to introduce an ‘Annual Emergency Withdrawal Allowance’ of £1,000 so people can withdraw from their LISA in emergencies, without losing their own money.
“If the Chancellor were to introduce this measure – as well as the property price cap review – we estimate it would cost the Government between £95-£163m* a year; a fraction of the cost of existing commitments such as the £9bn pension triple-lock and £50bn pension tax relief.”
- Provide clarity on ISA fractional share investing
“Under HMRC rules investors are allowed to hold listed company shares within an ISA, either directly or via listed funds. Fractions of shares are a relatively new invention that allow savers to invest in companies that they are interested in and passionate about from as little as £1, even if the share price of these companies is much higher. Given that the original ISA regulations were written decades ago, it’s no surprise that fractional shares are not explicitly mentioned.
“Moneybox firmly believes in encouraging healthy savings and investing habits, and the ability to invest in fractional shares within an ISA has allowed many budding investors to do just that. It’s our wish that the Chancellor revisits the current legislation surrounding this, to further instill confidence among younger investors, and formalise the rules around fractional shares and ISAs.”
- Simplify rules around ISAs to incentivise savers and investors
“There has already been much speculation ahead of the Autumn Statement around a package of measures known as ‘ISA simplification’ which include merging the Cash ISA and the Stocks & Shares ISA into one account and removing the rules around only being allowed to contribute into one of the same type of ISA each tax year.
“So far we have seen that the Chancellor is set to announce changes to allow savers to contribute to multiple Isas of the same type in the tax year, without impacting their £20,000 allowance.”
“We believe these changes would be a welcome shift for millions across the country, giving people the flexibility to best-optimise their tax-free allowances, while encouraging providers to build on the success of ISAs and further instill saving and investing behaviours in the new generation”
*Based on the most recent statistics published by HMRC on the Lifetime ISA (LISA) and available here, Moneybox calculates:
- Net spend of the LISA bonus for tax year 21/22 was: £394m
- £425m bonus spend on contributions
- Minus £31m bonus reclaimed on penalty withdrawals
- Net spend has increased by c.£50m in each of the past years, given the increasing number of people saving into a Lifetime ISA
- Since launch in 2017 until EOTY 21/22, HMRC has spent c.£1.3bn on LISA bonus
Moneybox’s asks in relation to the cap and withdrawal penalties would cost between £95m – £163m a year. While it understands the current pressures on the public finances at the moment, this potential cost is a fraction of the cost of:
- The Triple Lock commitment (£9bn a year)
- Pension Tax Relief (£50bn a year)
- ISA Tax Relief (£4.3bn a year)