Calls to make ISAs simpler

Are you familiar with the range of ISAs available? Do you wish the system was simpler? If so, you're not alone – confusion abounds, and Saga Investment Services is calling for the whole thing to be simplified.

According to their research, many people aged 50+ feel that the ISA system is too complex with an unnecessary number of products available, and it isn't too much of a stretch to imagine the same thing will be found among other age groups, too. Indeed, almost half of the over-50 respondents said there should be just one type of account – whether cash or investment –rather than making specific ISAs for housing and pensions, with there being widespread confusion over the types available and who's eligible for them.

For example, just 14% of respondents knew that cash ISAs were available to people over 16, with one in five saying they didn't know who could open one, while only a third knew that an investment ISA was available only to over 18s, and a quarter didn't know who was eligible. There was even greater confusion over more recent products: 51% had no idea who could open an innovative finance ISA, while only 8% realised that the lifetime ISA will only be available to those under 40, which suggests that many could be disappointed when these accounts become available in April.

Transfer rules were also found to be cause for confusion, with half of over-50s surveyed not aware that they could transfer cash ISAs into investment ISAs (and vice versa), and nor were they aware of the specific requirements to transfer ISA funds between providers, rather than closing the first account and reinvesting, in order to preserve the tax-free status of their cash. Terminology can also leave people in the dark, with 40% of respondents not knowing that investment ISAs and stock & shares ISAs are different labels for the same type of account.

"So many changes have been made to the ISA system over recent years that people are struggling to understand the rules," said Nici Audhlam-Gardiner of Saga. "Keeping things simple is the best way to encourage understanding and action, [but] we are in danger of every good idea resulting in a new type of savings plan. We are calling for a wholesale simplification – one ISA for all ages, the same terms and benefits for any purpose."

Whether or not such an idea comes to pass, there clearly needs to be greater understanding around ISAs and who can benefit, so start the process by reading up on our ISA guides and finding out more about the lifetime ISA – due to be launched in April – to get a better idea of the options available.