Potential threat to annual £20k ISA limit?

coastline

£100K limit ? Save £200 a month for 20 years at 5% and it's over £80K . Not exactly out of reach for most .

Savings Calculator With Regular Deposits/Withdrawals (thecalculatorsite.com)

surreysaver

london21 said:

"In 2020-21, only 7 per cent of ISA holders (1.6 million people) maxed out their annual ISA allowance" I am not surprised. Depends on people's income and priorities.

Reading this has encouraged me to continue to put money away in my Funds ISA. 

The younger generation have it harder,  even the pension age is increasing also. 

In 2020/21, a combination of low interest rates and the Personal Savings Allowance negated the benefits of an ISA, unless you wanted to protect money from future years tax

Albermarle

Linton said:

Albermarle said:

I suspect there are an appreciable number of 'Boomer' forum contributors who have indeed been maximising ISA contributions annually and not relying on inheritances and redundancy payouts to do so.

I suspect like many other forum contributors with a decent salary, we were too busy maxing our 40% tax friendly pension contributions, to worry too much about also putting £20K pa into ISA's .

One can of course do both.

Although I have benefitted considerably from the £20K allowance I cannot see allowing people like me a permanent tax free income of £10K+ can possibly be seen as justifiable as a matter of public policy.

Relatively poor or middle income people should be ecouraged to save for the future but the current level of permitted contributions goes way beyond an "encouragement".  It is purely a tax avoidance gift for the more wealthy.

Which goes full circle back to the OP, and what the Resolution Foundation are saying.

poseidon1

Albermarle said:

Linton said:

Albermarle said:

I suspect there are an appreciable number of 'Boomer' forum contributors who have indeed been maximising ISA contributions annually and not relying on inheritances and redundancy payouts to do so.

I suspect like many other forum contributors with a decent salary, we were too busy maxing our 40% tax friendly pension contributions, to worry too much about also putting £20K pa into ISA's .

One can of course do both.

Although I have benefitted considerably from the £20K allowance I cannot see allowing people like me a permanent tax free income of £10K+ can possibly be seen as justifiable as a matter of public policy.

Relatively poor or middle income people should be ecouraged to save for the future but the current level of permitted contributions goes way beyond an "encouragement".  It is purely a tax avoidance gift for the more wealthy.

Which goes full circle back to the OP, and what the Resolution Foundation are saying.

I was kind of playing devil's advocate with the post. I could certainly see the Foundation's rationale for their stance.

However, from a personal standpoint, I have been maxing out ISAs  ( and Peps and tessas before them), as my primary means to build wealth as a basic rate tax payer most of my working life.  I had abandoned s226 pensions after the Equitable Life fiasco ( i was one of the victims) , and found the relative freedom and control of ISAs liberating. 

Only returned to pensions when Sipps became more cost effective via the likes of HL 14 years ago, but only made meaningful contributions in latter years as a 40% taxpayer. Now in retirement my objective is to build an annual ISA income stream to exceed both the  State pension plus 4% sipp drawdown, with a view to steadily reducing my Self assessment income tax exposure and increasing net spending.

ISAs have been a direct contributor in my getting  to 'wealthy' status. Would like to think Gordon Brown would have been sanguine at this personal outcome, eventhough  not necessarily replicated across the general populace as he may have hoped.

hallmark

Shame it never occurs to the likes of The Resolution Foundation that a chunk of the population having worked & saved enough to NOT rely on the state when they're pensioners might actually a good thing for the country.

MacPingu1986

hallmark said:

Shame it never occurs to the likes of The Resolution Foundation that a chunk of the population having worked & saved enough to NOT rely on the state when they're pensioners might actually a good thing for the country.

I think you've misread the Resolution Foundations paper - it doesn't make any claims that reducing savings levels is bad. The main argument is that the benefits of ISAs (and in particular the relatively high annual ISA allowance) substantially improve the wealthier you are, and haven't led to an increase in saving amongst those on low to middling incomes. ie - is there merit in a re-designed form of ISA that better incentivizes saving amongst the latter?

EthicsGradient

hallmark said:

Shame it never occurs to the likes of The Resolution Foundation that a chunk of the population having worked & saved enough to NOT rely on the state when they're pensioners might actually a good thing for the country.

If you read the paper, you'll find that they say encouraging pension saving would be a better use of the money, rather than for the top end of saving that isn't designed for retirement. 

hallmark

EthicsGradient said:

hallmark said:

Shame it never occurs to the likes of The Resolution Foundation that a chunk of the population having worked & saved enough to NOT rely on the state when they're pensioners might actually a good thing for the country.

If you read the paper, you'll find that they say encouraging pension saving would be a better use of the money, rather than for the top end of saving that isn't designed for retirement. 

Surely that's based on them assuming that ISA savings are not for retirement?  I'd guess that in the vast majority of large ISA pots they are very definitely for retirement.  Lots of people prefer to save for retirement in something they have full control of i.e. an ISA than in a SIPP (even if that's not generally regarded as the best way to do it).

EthicsGradient

hallmark said:

EthicsGradient said:

hallmark said:

Shame it never occurs to the likes of The Resolution Foundation that a chunk of the population having worked & saved enough to NOT rely on the state when they're pensioners might actually a good thing for the country.

If you read the paper, you'll find that they say encouraging pension saving would be a better use of the money, rather than for the top end of saving that isn't designed for retirement. 

Surely that's based on them assuming that ISA savings are not for retirement?  I'd guess that in the vast majority of large ISA pots they are very definitely for retirement.  Lots of people prefer to save for retirement in something they have full control of i.e. an ISA than in a SIPP (even if that's not generally regarded as the best way to do it).

Well, that's the point - if they have full control over it, it's not for retirement, it's for whatever you want. They wrote a paper in February (it's linked from this one) suggesting the UK adopts rules more like New Zealand, Australia and others which would allow some of a retirement fund to be used in case of unforeseen need eg redundancy. This would mean saving for retirement doesn't lock funds up when there's a real need for them, but doesn't divert tax revenue to discretionary spending.

FWIW, I'd guess that the majority of large ISA pots aren't for retirement, since most people can use SIPPs efficiently for that, and they are instead use by people who just want to invest while paying as little tax as they can, and, as you say, have full control over it.

Amoux

I agree with the arguments but have less confidence that anything will be done about it. We've had successive governments wilfully and disproportionately prioritising the wealthy with generous tax breaks over low-to-middle income earners. Only 7% of people are taking advantage of the full ISA allowance because the vast majority of people do not have 20K to save a year. Abolishing the pension lifetime allowance might be a boon for some here, but it does nothing for low-to-middle income earners. The Lifetime ISA is also poorly targeted and is disproportionately held by individuals in the top income quintile. I think we have also been giving considerably generous tax relief for high-rate pension contributions. All of these things and more come at significant cost to the treasury, and it's becoming increasingly difficult to justify when it's the wealthiest pocketing the lion's share. 

I would expand and improve on schemes that demonstrably could make a difference to ordinary peoples lives, like auto-enrolment or targeted schemes like Help to Save.