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Fool.co.uk calls for further simplification of Individual Savings Accounts (ISAs)

Personal_Finance / ISA's Jun 09, 2007 - 11:44 AM GMT

By: Fool.co.uk

Personal_Finance

Virtually all savers find the plethora of rules governing ISAs confusing according to new research (1) by independent personal finance website Fool.co.uk.

  • One in five savers think couples can open a joint ISA
  • Two out of five say you lose your tax benefits if you withdraw money from an ISA
  • Four out of five think ISA season ends in April
  • Three out of ten savers reckon CAT standard ISAs are better
  • One in five savers believe they must tell the taxman about their ISA nest egg
  • One in ten think all cash ISAs are the same

ISAs, which were introduced in 1999, are held by more than 17 million people in the UK. Collectively, over £220 billion has been invested (2) in these tax-free savings schemes. However, popular misconceptions held by almost 4,000 Fool.co.uk readers suggest that ISA rules should be made simpler.

For instance, one in nine people say you must be at least 21 years of age to open an ISA, and one in four suppose that only taxpayers are allowed to open ISAs. Another myth held by one in 16 people is that you need a lump sum to open an ISA. None of these are true - you can have a cash ISA when you are sixteen, non-taxpayers can have ISAs, and you can open an ISA with as little as 1.

The survey also reveals that one in five savers believe that ISAs are run by the Government. Of these, one in three reckon that savers are required to tell the taxman about any money held in ISAs. A small number are confused over where you can get ISAs - around one in 25 people believe that they can only be obtained at banks.

One in five savers think couples can open joint ISAs, and two out of five assume that you lose your tax benefits if you withdraw money from an ISA. There seems to be some confusion here with TESSAs where tax relief was clawed back if any of the invested capital was taken out early.

Four out of five people believe that ISA season ends in April, one in ten think all cash ISAs are the same, and three out of ten savers hold the CAT standard in high esteem. They say ISAs that carry the CAT mark are better. Reassuringly, only one in ten people think that they are stuck with the same manager once they take out an ISA. An overwhelming number recognise that they can move providers to get a better deal.

David Kuo, Head of Personal Finance at Fool.co.uk says: "It is unacceptable that ISAs are still poorly understood by so many people despite being around for over eight years. The Government must accept some responsibility for failing to inform savers properly.

"In February, Ed Balls proposed reforms to simplify ISAs and make them more flexible. A significant change will be the abolishing of the mini and maxi ISA distinction. However, whilst the reforms are welcome, our survey shows that ISAs need to be simplified even further.

"Currently, only around a third of the eligible population has ISAs. To bring the tax-free benefits of ISAs to the wider public more needs to be done to improve what should be an easy-to-understand product.

"Just as a sculptor produces an elegant statue by chiseling away at bits that are not needed, the Government can do more to encourage saving by chipping away the myths and misunderstandings about ISAs"

For further information and/or to arrange an interview with David Kuo please contact:

Notes :

1. An online survey of 3,654 Fool.co.uk readers conducted between 4 May, and 31 May 2007.

2. HM Treasury news release (1 February 2007): Simpler, more flexible ISAs from April 2008.

By Sonia Rehill
soniar@fool.co.uk
http://www.fool.co.uk


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