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Changes to cash ISAs will force many Brits to re-think their attitude towards investing in UK companies and put their savings into globally-focused personal pension plans instead, an investment adviser has predicted.
Chancellor Rachel Reeves is reported to be considering cutting the cash ISA’s £20,000 annual tax-free allowance to £4,000 in an attempt to encourage more Brits to invest in UK-based companies; Ms Reeves’ proposals are part of the government’s drive to push British economic growth plans.
She is also reported to mulling plans to force pension companies to allocate at least 5% of their default funds in UK companies by 2030, a move that has been met with criticism.
Richard Rice, investment adviser at Moneyfarm said the the government’s proposal to mandate that UK pension funds allocate at least 5% of assets to British investments raised valid concerns around investment freedom.
He said personal pensions, which included self invested personal pensions, were not in Reeves’ sights and could be used by savers who wanted to find a home for their cash.
“While this move [cash ISA changes] restricts the discretionary mandate of pension fund managers and prompts debate over political influence in asset allocation, it’s important to clarify that individual private pension holders are unaffected as they retain full access to global markets and complete investment discretion.
Rice said personal pensions offered an alternative to cash ISAs for investment and could tap into companies world-wide as well as money market funds which can mimic the less-riskier benefits of cash: “For savers, especially those conscious of the UK’s historic underperformance relative to global peers, the flexibility and global reach of private pensions remain a critical advantage.”
Self invested personal pensions (Sipps) can be set up with £100 and if the saver is a UK taxpayer each £100 paid in is worth at least £120 as the tax is refunded.
The money sits in a dealing account and a saver can choose to invest the money in shares or leave it to accumulate the tax-free benefits and invest when and where they choose, although if the money is left to roll up it may not benefit from stockmarket growth.
There are also some fees payable including an annual management charge and share-dealing charges. Sipps can also include government gilts.
Popular Sipp providers include AJ Bell, interative investor and Hargreaves Lansdown.
Warning: Investing comes with the risk of losing all your capital, so make sure you shop around and do your homework before committing your savings to a long-term strategy.
