Over 50’s ISA allowance - Top up Tuesday

Andrew Hagger of Moneynet.co.uk looks at the cost implications of the ISA changes for over 50's that come in to force today.

So the 6th October is here at last and those consumers who reach 50 years of age before the end of the tax year are now able to shelter a further £3,000 from the taxman.

Whilst it was a positive PR move from the Chancellor to increase the ISA allowance for a proportion of the population six months ahead of the new tax year, you have to question whether the cost to financial providers has been greater than the actual monetary benefit that the consumer will receive.

If you take the Cash ISA element for example, £1,500 invested for the full 6 months at a realistic 3% would produce a return of £22.50 tax free. However if you'd invested this money in a standard savings account at the same rate you would have received £18.00 net as a basic rate tax payer or £13.50 as a higher rate tax payer.

So the net tax free benefit over six months amounts to either £4.50 or £9.00 depending on your tax situation.

If you weigh this up against the many thousands of man hours that banks and building societies up and down the land have invested in designing new IT systems, updating customer literature, rewriting websites, additional advertising and staff training costs, you have to question if it was really worth it and whether it would have been better to have waited until the new tax year when everyone will benefit.

It was a great headline grabber at the time, but we're not talking about a life changing sum of money here. Whilst it's important that people are encouraged to save at every opportunity, perhaps the real financial impact of this move should have been given a little more thought.