Martin Lewis: Cash ISA limit could be cut – this is 'p*ss people off economics'

worldtraveller

What about transferring cash holdings in previous tax year(s) cash ISA's into a new cash ISA? Will there be limits to the amount you can transfer? What about selling funds held in S&S ISA(s) from previous tax years in to cash and moving it into an old, or new Cash ISA(s)? Will there be a limit how much you can transfer? 

These are just some of many questions. As people have already stated, it'll just make the whole system even more complicated.

BS_Meter

There may be an alternative using a stocks and shares ISA and buying into a cash based exchange traded fund.  There are ETFs which track the bank overnight rate, short dated gilts etc.  Downsides are buying and selling costs, these depend on the platform used, the absence of Financial Services Compensation Scheme cover.  On the plus side gilts are government issued stocks so are underwritten by the taxpayers.  The upside is that there is yet to be anything mentioned about reductions to the overall £20,000 limit.

There are consequences if you use ETFs outside of an ISA but this thread is focussed on ISA allowances.

masonic

There is FSCS protection for investments, the exact scope depends on the type of investment. ETFs have less cover than a UK domiciled fund.

A few of the top cash ISAs already use money market funds instead of cash on deposit. These are not as risk-free as an actual deposit account, but viable for someone who could not take more risk and would pay tax outside an ISA.

Suspect that is a moot point as S&S ISAs would need to exclude cash-like investments to avoid simple workarounds like that. Easy for HMRC to simply declare such products ineligible to hold in a S&S ISA as was the case in the past.

fromtherooftops

Altior said:

As I've stated in the past, interest on cash savings predominately protects the capital from inflation erosion. The interest is not therefore really income, it's standing still in real terms. If the interest is scalped by the tax man, it will be effective net erosion. 

Happy to stand still on inflation erosion thanks and move max amount of accrued savings each year into a cash ISA. And I do shop around for the best ones. A lot of people don't have the time to work out the stocks and shares market and risks and charges involved. Let alone 'wealth management' or IFAs trying to persuade you to park large chunks of your pension fund into their funds with hefty management and maintenance fees. 

PegasusPJ

daveyjp said:

friolento said:

daveyjp said:

Just set a maximum limit for cash which can be held in ISAs.  Make it high enough to accommodate anyone who wants lower risk - £250k will fund a decent retirement income.    There's a limit for Premium Bonds and no one is moaning it should be higher.

Your understanding of "decent" does not tally with mine. Particularly not in a falling interest rate and high cost of living environment, few NHS dentists, and terrible GP/NHS service which drives people towards private services.

 

I am talking £250k of cash ISA holdings limit   Anyone with that in ISAs should have plenty of other retirement income from personal and state pension.

nope. might not quite reach 250k by the time i want to retire (bit early to synch with my older partner, who has no saving or pension apart from state), but only other retirement income aside from state one is a small defined benefit pension (because only started at that job 7 years ago, and temped the rest of my life without option of pension, or desire to 'save' in the casino that is the stock market).
so the cash isa IS my whole retirement fund.

aside from not trusting the stock market , both private pension funds and SSI charge fees just to have them, regardless of performance, meaning aside from capital risk, you need to earn not insignificantly higher interest just to cover those.. which of course is why those same lobbied for this push to SSI, so they can gamble with your money and make you pay for the privilege..

Angelica123

I think the premise overestimates the financial literacy of the general public. Many of my friends, educated and on reasonable wages, barely understand what ISAs are as it is. I found many of them keep large amounts of cash in current accounts just because as long as they were making ends, they weren't interested in learning more about finances. These are the type of people who could afford to invest more (and likely a target demographic) but wouldn't if the new changes take place because they wouldn't take the time to learn enough about investing to feel comfortable to do so (and don't earn enough to pay someone else to do it for them). They would be much more likely to keep their cash in their current account to avoid tax (without understanding the concept of erosion with inflation). 

Meanwhile, many who do invest, invest in low cost global index-linked funds which isn't heavily weighted towards the UK market. So it still doesn't achieve the desired effect. 

In many ways, the conservative idea of a British ISA was a much better way of incentivising people to specifically invest in UK market 

friolento

IvanOpinion said:

I know it's not the same and there is increased risk, but people could invest in a money market fund in a S&S ISA.

I have no idea how you can seriously generalise like that

GazzaBloom

If the cash ISA limits are reduced it's easy enough to use a stocks and shares ISA and buy a short term money market fund, which is typically viewed as “cash like” and elevate the 2 finger royal salute to Rachel from accounts. STMMFs are typically going to pay interest closer to BOE base rate than high street bank cash ISAs anyway.

Baldeagle095

Following the last minute climbdown by the Government on the welfare bill, the Government is faced with raising taxes. I would have thought that all ISAs, both current and historic, would be considered fair game in that regard.
IG's "Save Our Stock Market" initiative argues that cash ISAs are "hindering rather than helping" people build wealth, with analysis showing cash savers have earned just one-seventh of the real returns achieved by equity investors since ISAs launched in 1999.

Grumpy_chap

If I understand this correctly, the suggestion is that reducing the amount that can be invested into a cash ISA will increase the amount invested in (UK) stocks.

It is not certain that reducing the cash contribution limit to cash ISA will achieve this.

The original idea of the TESSA / ISA and such like was to increase savings amongst those that are not saving sufficiently.

Some are risk averse or not knowledgeable enough on share investments so will simply stick with cash regardless.

Some have cash in the ISA as part of a wider, balanced and considered investment portfolio which may include stock holdings (either in the ISA or elsewhere).

Some may be prompted to move some (future) ISA contributions into stocks, but will presumably do so to maximise their gain against an acceptable (for the individual) risk profile).  No guarantee their stock selections would be UK stocks.

What, I wonder, is the starting point of the individual that would make, say, a £5k deposit into their ISA as cash and will now change behaviour to make that as stocks?