The Isa is a fantastic saving and investing invention. It wraps around your savings and investments, protecting them from tax on interest, profits and dividends, and is a wonderful way to build long-term wealth.
To my mind, outside of the money you stash away for your pension, saving or investing into an Isa is a no-brainer.
But the Isa system also needs a radical change, because it’s not up to scratch anymore.
A lot of the discussion of Isa shortcomings hones in on the muddle of different types now available – cash, stocks and shares, Innovative, Lifetime, Junior – but I don’t think that’s the problem.
The real issue is that you can only put new money each year into a single version of each type of Isa and that doesn’t reflect how we save or invest nowadays – nor the bumper £20,000 allowance.
This oddball rule means that you cannot save into two separate cash Isas in any given year: so you can’t put money from your annual allowance into both an easy access Isa and a fixed rate Isa.
Nor can you pay into more than one stocks and shares: this means you can’t invest a chunk to be looked after by a financial adviser or robo-adviser and also another bit that you manage yourself with a DIY investing platform.
Instead, you must make just one choice and stick with it, even if from a financial planning point of view that doesn’t make sense.
There is a very strong argument to say that if you are going to save a substantial amount of cash each year, you should do it into a mix of easy access and different length fixed rates.
Likewise, as a DIY investor it makes good sense to get an expert – human or robot – to look after a decent slice of your annual investments, while you manage the rest.
This just one Isa issue has long been a bugbear of cash savers – there are even some clever mix-and-match bank and building society accounts that try to get round it – but since the Isa allowance was dramatically raised it’s become an even greater problem.
Until George Osborne released his £15,000 New Isa into the wild in the 2014 Budget, the Isa allowance was £11,520 and you could only save half of that in cash.
The ‘only half in cash’ restriction was swept away by what was dubbed the Super Isa, and later the allowance was bumped all the way up to £20,000 in April 2017.
Yet, still all of that can go only into one of each type of account.
Considering we have a consumer system built on choice driving competition to improve things for customers, this rule has another bizarre element to it in that it hampers competition and new entrants to a market.
Take the investing world. Back in the days of investing via a financial adviser, stock broker or going direct to a fund manager, maybe only being able to pay money into one stocks and shares Isa made sense.
How would experts change Isas?
We asked a slection of financial experts what they would do to improve the Isa system.
Andy Bell, Ros Altman and james Blower all gave us their views.
> Read their thoughts fixing Isas for the better
In the modern day of the DIY investor it is daft. There is a wealth of choice of platforms out there for people to invest with and some are better at some things than others.
For example, even among the traditional DIY investing platforms, such as Hargreaves Lansdown, Interactive Investor, AJ Bell, Fidelity and rivals, there are strengths and weaknesses on some things – some might be better for funds, others for shares and investment trusts.
Then there are the robo-advisers, such as Nutmeg, Wealthify and Moneyfarm, and the free share trading apps, such as Trading 212 and Freetrade, which are good for stock picking.
All of the above offer Isa accounts, and yet you could only pay money into one of them each year.
That limits competition between the well-known DIY investing platforms and hinders people trying out a rival.
And even more so, it dents the prospects of new entrants coming to the market, who must not only compete with an established big name rival but also people’s inability to dabble with a newcomer with just a bit of their investments each year.
It also causes issues with FSCS protection for those with sizeable pots: only up to £85,000 per platform is covered but the rules actively discourage spreading money around.
And finally, the just one Isa rule looks even dafter when you consider that you can put new money into as many different pensions as you want each year.
If the pension system can cope, so can the Isa system.
In the digital age there is no reason why we can’t keep track of people spreading their annual Isa allowance system around.
It’s the last piece of the jigsaw for Isas being a great way to save and invest and we should put it in place.