Nicer ISA

For decades now, successive Governments have aimed to encourage saving. Arguably it is very much in their interests to do so. People with savings, pretty much by definition, are less likely to run into financial difficulties. Or to put that another way, they are also less likely to need state benefits. In recent years, Governments have made particular efforts to encourage saving for retirement (“We’re all in!”). While pensions have been the most traditional form of retirement savings, NISAs may also be worth investigating too.

 

The Start of the ISA Age

 

ISAs were introduced way back in 1999. Then, as now, they essentially provided a tax-efficient wrapper for savings and investments. To begin with there were two kinds of ISAs: (1) A Cash ISA received the entire interest income from the cash deposits without any tax being charged. (2) A Stocks & Shares ISA was used for investments. The rules around tax were a bit more complicated but they were still very tax efficient.

 

People could choose to have one or the other or both. There was, however, a twist to the rules around ISA limits. Investors could choose to put their whole ISA allowance into a Stocks & Shares ISA. Alternatively they could choose to split the allowance between a Stocks & Shares ISA and a Cash ISA. Those who did so still received the full ISA allowance but there was a limit to how much they could keep in cash. Savers who simply wanted a tax-efficient savings vehicle, could choose just to have a Cash ISA. If they did so, however, they could only save the maximum permitted cash allowance. ISAs were intended as products for the medium to longer term so the limits referred to the total amount holders could deposit. In other words, if you withdrew money from an ISA you couldn’t just replace it.

 

ISAs In Practice

 

When ISAs were first introduced (financial year 1999/2000) investors could choose only to have a Stocks & Shares ISA in which case they could invest up to £7,000.00. Alternatively they could choose to have both a Stocks & Shares ISA and a Cash ISA, in which case they could invest £4,000.00 via the former and save £3,000.00 in the latter. Savers who only wanted a Cash ISA could only save up to £3,000.00. The limits and the ratios of Cash to Stocks & Shares changed somewhat over the years but the basic principles remained the same. Then on 1st July 2014, the Government introduced NISAs.

 

Having A NISA Is So Much Nicer Than Having An ISA

 

Fundamentally NISAs work the same way as the old ISAs. The Government used the introduction of NISAs as an opportunity to raise the deposit limits (to £15,000.00) but there is nothing particularly unusual about that. The headline change, however, is that the ISA allowance can now be used as the individual wishes. In other words, savers can now choose to use their entire £15,000 to hold Cash or in Stocks & Shares.

 

But Remember......there is a significant difference between the two in terms of risk!

Housing Block

 

Latest figures relating to housebuilding plans over the last few years highlight that new build plans have been blocked by the Government in the run up to the General Election.

 

Housing has become a major issue in the General Election campaign as high prices and stagnant wages have left a generation of potential first time buyers struggling to get on the housing ladder. The result is homeownership at its lowest level in 30 years and housebuilding at record lows.

 

To put this into figures……experts are generally agreed that around 250,000 new homes need to be built each year to meet demand. Yet only 160,000 have been built in the last 12 months.

 

Which all begs the question……what is the current Government playing at when they are looking to win votes?

 

This is an easy one……

 

Firstly, the average age of a homeowner is far higher than the generation trying to get on the housing ladder. This younger generation has a much lower voting ratio than older voters (the over 55’s are a 75% voter).

 

Secondly, there is a direct correlation between how we feel about our personal financial prosperity and the value of our home. If the number of properties available can be restricted then house prices will remain (perhaps artificially) high and the perception towards the Government is more positive.

 

Thirdly, homeowners are a far bigger voting majority than the renting minority.

 

It may seem brutal what the Government has done with the housing market over the last few years but in a bizarre, strange and almost admirable way……it is very clever.

 

Whilst all political parties will make gusts of noise about sorting the housing issue for first time buyers, it is actually not in their best interest to do so.

 

‘Clever yet shameful’ sums it up nicely.

Laugh Or Cry?

Accountants KPMG have announced in their recent report that Britain's largest banks have paid 60% of their profits since 2011 in fines and repayments to customers. The total fines in the last 4 years has risen to £39 billion.

 

On the one hand……

 

Banks making profits is clearly good for the economy as we need them to be cash rich to lend cheaply to ignite growth. Let’s be honest……none of the political parties can be trusted to stimulate growth so the reliance on the banks to do it is greater than ever.

 

Equally, the regulator doing their job is commendable as the banking crises and collapse was during a prolonged period of light touch regulation. A little late but very welcome.

 

On the other hand……

 

What on earth have the banks been permitted to get away with in the past? The new regulator is clearly a far tougher beast than the previous lame effort and I am starting to question how far back we need to go? How many stones need to be turned over? Has only the surface been scratched?

 

When the chief of HSBC openly states that he “cannot guarantee there won’t be more fines”, I wonder in bewilderment at what can of worms we encounter around the corner.

 

Very sad. Very avoidable.