Nationwide calls for changes to be made to the ISA system

Nationwide Building Society is calling on the Chancellor to make a range of changes to the ISA system ahead of his Pre-Budget Report.

Nationwide calls on the Chancellor to:

introduce equal limits on cash and equity ISAs
index-link ISA limits to inflation to ensure they keep their true value
allow equity ISA holders to switch all or part of their ISA into cash

As announced in the 2007 Budget, higher limits for annual investment in ISAs will be introduced on 6 April 2008. The change will allow people to save up to £3,600 in a cash ISA and up to £7,200 in a stocks and shares ISA, within an overall annual savings limit of £7,200 – up from £7,000. While Nationwide welcomes an increase in limits, it does not believe that these changes go far enough to help encourage a more robust savings culture in the UK.

Equal limits on cash and equity ISAs

While the changes to the ISA rules should make them more flexible and easier to understand, cash ISAs will continue to be more restrictive than equity in terms of how much can be invested. By increasing the flexibility that a cash ISA can provide through raising cash limits to equal that of equity, Nationwide believes that the Government can help ensure that it meets its aim of establishing ISAs as the primary vehicle for tax-efficient savings outside of pensions.

Indexation of ISA limits

Nationwide would like to see ISA limits index-linked to inflation to ensure they keep their true value. Since their introduction in 1999, ISA limits have not kept pace with inflation and will only see a small rise when the new maximum investment amounts are put in place next April. Nationwide would like to see the Government restore ISA limits to their true value by increasing annual cash and equity ISA limits to £8,680, while index-linking these limits to inflation going forward.

Allow ISA holders to switch from equity to cash

Nationwide believes the flexibility to spread investments between cash and equity would be appealing to many savers. Under current ISA rules, those wishing to move all or part of their investment from their equity ISA would lose the benefit of their tax-efficient savings wrapper. Nationwide believes the Government should follow the model of the Child Trust Fund (CTF) which gives parents the option to switch their child’s CTF from cash to equity or equity to cash. Nationwide calls on the Government to give ISAs the same treatment. Providing an option to switch for equity ISA investors would give consumers the flexibility to manage their money in a way that better suits their needs should their circumstances change.

Matthew Carter, Nationwide’s director of savings, said: “ISA limits simply aren’t as generous as they once were. Nationwide believes that it is time to redress the balance and restore the limits to their true value and therefore maximise their potential.

“The Government also has the opportunity to simplify ISAs by equalising the cash and equity limits. People should have the opportunity to invest as much in cash as they can in equity and be able to move all, or part, of their investment between the two types of ISA should their circumstances change.

“The Government has removed some of the difficulties associated with the ISA system, however, we feel that more can still be done to encourage savers to make full use of their ISA allowances.”