The Rollover ISA – what a bonus!
By Scott Murphy | Wed 21 Jan 15
By Scott Murphy | Wed 21 Jan 15
The nation's favourite savings product has undergone a huge transformation, with restrictions lifted, the annual deposit limit rising to £15,000 and the announcement that peer-to-peer lending would be included within the tax free wrapper. So where next for the ISA?
I've saved into an ISA since I was 16. Despite this semi-fanatical devotion there have been a few years where I have failed to save the maximum amount allowed. Come the stroke of midnight on 6th April each year that allowance is gone - so wouldn't it be great if you could roll over any unused allowance?
Last week one of the UK's leading think tanks, Policy Exchange, published a proposal for the creation of a "BISA" - a Bonus ISA. The BISA would allow savers to accrue unused allowance and then use it, either in a single year or multiple years in the event of a windfall. But why would you need this option in the first place?
Income patterns are not consistent over a lifetime. I'm a good example of this - last year I received a sizeable windfall that took me over the ISA limit, but the year before I struggled to fill all of my £11,520 allowance. It would have been great to save this extra money, tax free, using unfilled allowances from past years. I'm not alone in this situation though - ONS figures cited in the Policy Exchange report show that over 800,000 people inherited money over £10,000 between 2010 and 2012. This variance in income and ability to save over a lifetime should be recognised by the tax free saving products available.
Policy Exchange also highlight that with the arrival of Automatic Enrolment for pensions people could withdraw their funds and deposit them into a Bonus ISA. 2014 Budget reforms could also drive demand for drawdown - and a tax free account would be a great way of storing it.
Critics might argue that this idea is open to abuse - the rich will accrue wealth in other products and then shift this into a BISA. The report suggests that a cap could be introduced which looks to be a wise move, giving an example of £10,000.
Speaking to RateSetter, Steve Hughes, Head of Economic and Social Policy at Policy Exchange said:
"The way that we save can be lumpy across a lifetime, but this is not recognised in the way that savings are taxed. ISA accounts have been an enormous success, which can be in part attributed to how the system has evolved to be more flexible and more generous. It is now time to look at what is next. The Bonus ISA would let people to take advantage of unused allowances from earlier on in life, and give them the ability to save more money tax free".
With the inclusion of peer-to-peer within ISAs and the better rates available to millions of savers it seems that a Bonus ISA could be just the thing many are looking for to make the best use of their savings. Sadly the idea is just that at the moment - an idea. But given the proliferation of crowd pleasing savings policy from the Government in the past year it may happen in the not too distant future. Canada already has a similar product in place - the TFSA - that allows unused allowance rollovers, doesn't charge penalties for withdrawals and even allows the full amount of withdrawals to be put back in! The product has been so popular that half (48%) of the adult population have signed up.
But what do you think of the BISA? Could it be the ultimate refinement of the ISA or are there other more pressing issues to sort out in the savings world? Let us know your thoughts below.
You can read Policy Exchange's full report here.
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