New ISA Limits advice

Alexland

kimwp said:

I'm thinking now do I need to start saving into a cash ISA earlier for my retirement to build up my buffer - so that's less money being invested.

Yes the restrictions might cause me to put a bit more in cash ISA(s) which is completely the opposite of what they were trying to achieve. I'm usually light on cash, only what I might need instant access to, as I could always draw upon my shorter dated investments in a S&S ISA which may no longer be allowed. It will mean I have to do that faffing around keep transferring the cash ISA(s) around to get the best rate each year. I really hope these changes don't happen.

surreysaver

The advent of flexible ISAs also means that, as long as you've got money to put in and take out to straddle the end and beginning of tax years, you can protect previous years ISA allowances, even if you cannot store the money in the ISA.
My flexible offset mortgage has been very useful for this

Albermarle

Alexland said:

gravel_2 said:

Think it's an AI generated post.

Me or the OP? I'm ok with anything that generates conversation on this topic if it increases awareness of what's really happening here as the bad stuff seems to be going under the radar and most media coverage seems to be taking it on face value that the cap on Cash ISAs is a good thing for encouraging S&S investment. As always the devil is in the detail.

That seems to be true, but it is a bit strange because before the budget, some parts of the (mainly anti Govt ) media seemed a bit obsessed about it. 
Maybe the over 65 concession has took the sting out of it - no scope for 'Govt robs pensioners' stories.

Personally I think encouraging more people to invest and take more risk, would actually be a good thing for them in most cases. Not sure though that this change is going to bring any significant progress though.

Kim_13

I think OP is saying don't cut your nose off to spite your face - if you have £20K available, don't forego £8K of tax wrapper because it will be S&S.

I think the changes could have been far worse - the £4k cash that was expected up until the Summer. But equally they could have been better, allowing for understandable derisking (although the banks wouldn't like the work that created for them in terms of being expected to police whether a transfer to Cash or a Cash like investment was appropriate or not) rather than just saying no until you are 65. If someone dips their toe into investing, which is what the government want from those who are yet to invest, they have to either commit to fees on an ongoing basis or withdraw the lot and lose the tax wrapper. 

Alexland

Kim_13 said:

I think the changes could have been far worse

Yes we seem to live in an age where if something only gets a bit worse that's a great result.

That's how low expectations are these days.

Albermarle

Alexland said:

Kim_13 said:

I think the changes could have been far worse

Yes we seem to live in an age where if something only gets a bit worse that's a great result.

That's how low expectations are these days.

The ability to save £20k with the interest tax free , was always an outlier in international terms .
Even when it is £12 k , there is still the personal savings allowance, starter savings rate etc..
Very generous compared to most other countries.
So maybe we have too high expectations, rather than too low .

boingy

However you look at it, in gamer terms the changes are definitely a nerf rather than a buff. 

TheBanker

Alexland said:

kimwp said:

I'm thinking now do I need to start saving into a cash ISA earlier for my retirement to build up my buffer - so that's less money being invested.

Yes the restrictions might cause me to put a bit more in cash ISA(s) which is completely the opposite of what they were trying to achieve. I'm usually light on cash, only what I might need instant access to, as I could always draw upon my shorter dated investments in a S&S ISA which may no longer be allowed. It will mean I have to do that faffing around keep transferring the cash ISA(s) around to get the best rate each year. I really hope these changes don't happen.

I'm with you on this. I'm using my S&S ISA to potentially fund an earlier retirement, before I can access my pension. I say potentially, because obviously it depends on what happens in the next decade, before I can put my plan into action. So on paper, the changes don't really affect me other than a small penalty for holding cash in the S&S ISA, which only really happens with a small balance to cover fees, and any dividends waiting to be reinvested. The over 65 exceptions don't help me, because by then I'll have spent the money.

However, I have some money in fixed rate cash ISAs which mature next year. My plan, before this announcement, was to move that to the S&S ISA. I was holding it in cash for a reason which no longer applies. Now, I am thinking of keeping it in cash. If I move it to the S&S ISA, it's basically trapped there for ever and I can't get it back into the Cash ISA as I approach a potential retiremenet date, or even after I stop working. I could take it out of the ISA wrapper altogether, once I stop earning a wage, as my personal allowances will cover the interest, I suppose.

But the point is, for me, at a micro level, this change could have completely the opposite effect to what the government intended. I am sure the government have a model that shows, at a macro level, their objective of increasing the proportion of money invested compared to held in cash will be achieved - but not for me!

NB: I am an experienced investor, but I can understand why people choose savings, even when investing would be the rationale choice. When you invest, you have lots of warnings, and the fact sheet, normally two pages of very small type, focuses on risks and might convince someone the world is likely to end. Yet when you choose cash, there is rarely any mention of risk beyond the FSCS limits - cash "investors" are not warned about the risk of inflation eroding their pot if they are planning to hold it for the longer term.

Alexland

TheBanker said:

But the point is, for me, at a micro level, this change could have completely the opposite effect to what the government intended.

Spot on, it's making S&S ISAs worse and encouraging us to put more in Cash ISAs. Utter madness.

poseidon1

Seems to be a degree of recency bias and rose tinted thinking regarding the objective appeal of cash ISAs having regard to events following the financial crash.

Certainly from 2014 through to 2022 sub 1% interest rates on cash isas was pretty much the norm, rendering (in my opinion ) cash isas to be a complete waste of time over that period.

So much so, I transferred my mother's utterly  miserable 0.1% Barclays cash isa to a new HL S & S isa in 2016 to generate an average 6% annual income distributions  from a mix of corporate bonds and bond/infrastructure funds. This radically increased her annual income from a paltry £35 to £2,100 on a £35k investment.

Have seen no necessity to 'derisk' that portfolio even following the steep rise in cash interest rates from 2023 onwards, but admittedly my understanding of the corporate bond sector is greater than the average retail investor.

 Remains to be seen if those asset classes  chosen for her ISA will be considered 'cash like ' when new rules introduced ( although both her and I apparently exempt via the age 65 cut off), but difficult for me to see corporate bonds meeting that definition in any event, given inherent risk of default if a company goes bust.

As we stand at present, cash interest rates are slowly declining again so we have no idea what will become the new normal in the next 5-10 years, certainly the current 4% average might then appear to be a  short lived 'golden age' in retrospect.