Government should ditch the Lifetime Isa and other esoteric variations of the savings wrapper, Interactive Investor has claimed.
Ahead of the government's Spring Statement, which is expected to be on March 15, the private investment platform called on HM Treasury and HM Revenue & Customs to pare back the Isa regime to just three choices.
In addition to ditching the Help to Buy Isa, which is no longer available for new subscriptions, this would also include getting rid of the Lifetime Isa.
According to Alice Guy, personal finance editor for Interactive Investor, there is "no consumer benefit to having multiple Isas".
She said: "We ask the government to consider simplifying the choices of Isa available. We recommend consolidating the existing Isa choices to Equity Isas, Junior Isas and cash Isas.”
Interactive Investor's submission to HMRC has claimed that presenting potential savers with a wide range of options means fewer people will actually benefit from saving and investing for their future.
Guy said: "For example, a 30-year-old self-employed, basic-rate taxpayer who wishes to save for the future and may not yet know exactly what those future savings will be used for, must decide between five different Isa wrappers."
The options are:
- Cash
- Equity (stocks and shares)
- Help to Buy (now no longer available. Existing subscribers can continue to pay up to £200 a month into the Isa until November 2029. They can claim the 25 per cent bonus until November 2030)
- Innovative Finance Isa
- Lifetime Isa
Then there's the Junior Isa, which was created after the end of the Child Trust Fund regime, which makes a sixth Isa wrapper.
The Lifetime Isa - or Lisa - was created in April 2017 to allow those aged between 18 and 39 to save up to £4,000 each tax year, and receive a government bonus of 25 per cent of the contribution if they use the product for their retirement or to buy their first home.
But even as far back as its launch, it has been riddled with criticism, as previously reported by FTAdviser, not least because it is inflexible and can only be used for a first house purchase or a pension at 60. Early withdrawals are met with punitive losses.
According to Jemma Jackson, head of public relations at Interactive Investor, the Lisa is "worth a special mention" as it benefits from a top-up incentive from the government to help pay for either house purchase or retirement.
She explained: "It was introduced at a particular moment in policy development but has never been built on; it sits as an anomaly, a half-way house between an Isa and a pension.
"If the government wishes to offer top-up incentives, for example for house purchase, it would be straightforward to create a set of rules for a back-end top-up which could be paid to an Isa investor at the moment when they withdraw funds to buy their first home."
Jackson added: "This would have the additional benefit of saving the Treasury money in the short term and give the government of the day greater control in how and when it chooses to deliver any top-up payments in the future."
