How Money Mail has fought to make Isas work for EVERYONE
INDIVIDUAL Savings Accounts are undeniably a success story. By April last year, there were 22.1 million adult Isas worth a total of £608 billion.
But when the Government first announced plans for them in December 1997, the prospects did not seem good.
Isas were designed to replace Peps (Personal Equity Plans), which were for shares and other investments, and Tessas (Tax-Exempt Special Savings Accounts), a cash savings account that demanded a five-year commitment.
Although the tax perks were less liberal, the Isa seemed simpler. But the idea had a flaw — which could have proved fatal.
Paymaster General Geoffrey Robinson, a multi-millionaire businessman who had just been revealed as the beneficiary of an offshore trust, told gathered reporters there would be a £50,000 lifetime limit for tax-free saving — anything above this would be taxable.
Margaret Stone, then Money Mail editor, pointed out this would constrain those who already held Peps and Tessas, to which Robinson retorted: ‘I don’t think we should be so concerned about them.’
This led the furious Stone to declare: ‘We must get that limit removed!’
What irked her most was that this hugely wealthy man sought to place a cap on the ambitions of ordinary folk, dismissing them as if they were of no consequence.
Faced with the wrath of Money Mail and its readers, the Labour government swiftly abandoned the proposed limit.
And ever since, Money Mail has continued to campaign on Isas, often inspired by our savings guru Sylvia Morris, whose peerless knowledge and tireless research make our unparalleled savings coverage possible.
She noticed banks and building societies were cutting interest rates for savers trapped in old Tessas, who had to stay five years to get the tax perks. We argued successfully that Tessas were like cash Isas but with more conditions, which meant banks were breaking their own code of practice on interest rates.
Then, in 2008, you told us it was taking months to transfer cash Isas from one bank or building society to another. When we wrote about this, we received more than 1,700 letters in just a few days.
Transfers were supposed to take no more than 30 days, but we revealed money was vanishing for three months or more. The reason was simple: providers, eager to make money, did not put enough staff on processing applications.
New rules have since halved Isa transfer times to a maximum of 15 days.
Our next battle involved the Junior Isa. When the Government killed off the Child Trust Fund, it left the savings of hundreds of thousands of children trapped in accounts, often with low interest.
We persuaded the Government to allow the cash to be transferred to the new, more flexible and better-paying Junior Isa.
Other Isa changes have been sparked by our research, too.
For example, after lobbying from investment firms, the Government allowed cash Isas to be transferred to investment Isas — but not the other round.
This was ludicrous. Why not let investment Isa funds be transferred to cash Isas? As people get older and their needs change, they may want more funds in cash.
Eventually, the Government changed the rules. However, these transfers can take up to 30 days.
Then there was the issue of inheritance. Isas — as the name suggests — are individual accounts. So, before, when the holder died, so did the Isa wrapper, and savings immediately became taxable.
This left widows and widowers owing tax on the investment. How utterly absurd.
Now, Isas can remain intact for three years after a death.
However, the system remains pointlessly complex.
At one time, the annual contribution limit was based on the amount of money actually paid in. So, when the cash Isa limit was £ 3,000 per tax year, someone who paid in that £3,000 and made a withdrawal in the same tax year could not replace the money. This was a clear disincentive to saving.
This rule has now changed, but not across the board. It is the decision of each Isa provider if they let cash be replaced within the tax-year — you must have a flexible Isa to do this.
Today’s Isa, with a £ 20,000 annual contribution limit for cash or investments, bears little relation to the Isa launched 20 years ago.
The tax benefits have been watered down — particularly with the removal of a tax credit, which boosted the value of dividends paid in investment Isas.
But perhaps my favourite thing about Isas is the simplicity they give to my tax returns. When asked about taxable interest earned, I can reply: None.