Government Should Allow ISA Savers to Switch From Equity to Cash ISA's

By: Nationwide

Nationwide Building Society calls on the Chancellor to take action ahead of the Pre-Budget Report and amend the ISA system by enabling equity ISA holders to switch all or part of their ISA into cash, without losing their tax free ISA status. This would complement the changes which take effect next April in which cash ISA investors will be able to switch to equity investments.

With over 16 million* ISAs in the UK, many savers are taking advantage of the tax benefits they bring. The changes to the ISA rules which take effect in April 2008 should make them more flexible and easier to understand. Nationwide welcomes the move to make ISAs more flexible but does not think that the changes go far enough.

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.

Matthew Carter, divisional director for savings at Nationwide, says: “ISAs need to be simplified to make them easier for investors to understand. We think savers would be more encouraged to make full use of their ISA allowances if the system was simple to grasp and the differences between the cash and equity options removed.

“From April 2008 the ISA system will allow people to transfer cash ISAs to equity** but not the other way around, so is not as flexible as it could be. Savers should be given the option to move all or part of their investments between cash and equity, as consumers should take advantage of both allowances. Additionally, people who are comfortable exposing their savings to the stock market now, may not be in ten or twenty year's time. So the lack of flexibility to switch to cash in later years may deter them from investing in equities now.

“While equities should be seen as long-term investments, we believe it is important that consumers have the option to switch to cash if their attitude to risk changes. The Government has got it right with Child Trust Funds and the Chancellor has an opportunity to make improvements to the current ISA regime to bring them into line.”

Notes:

*Over 16m customers hold ISAs; Mintel Report June 2007

ISA limits are as follows:

Until the end of the tax year 07/08

• Mini Cash - £3,000 plus
• Mini Equity - £4,000 or
• Maxi Equity - £7,000

**From April 2008, equity ISAs will be known as Stocks and Shares ISAs

From April 2008, savers will be able to move all or part of the savings built up in a cash ISA into equities.

From April 2008

• Cash ISA - up to £3,600

Stocks and shares ISA - £7,200 (or a balancing amount after deducting the amount saved in a cash ISA, for example if £2,000 is saved in a cash ISA then £5,200 could be invested in stocks and shares ISA in the tax year).

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