Only last week I wrote a post explaining why I think money saved into ISAs is safer from the government than money saved into pensions. It sounds perfectly sensible, but all it actually does is prove how even someone as consistently cynical as I am can underestimate the idiocy of governments.
According to the Sunday Telegraph, the Treasury has been doing a few of the things I anticipated last week. It has for example been “gauging opinion” on slashing the amount of tax free cash people can take from their pensions. But it has also been discussing dealing with what the paper calls the “concerns” about ISA millionaires, with a cap on the total amount one can save into an ISA of £100,000.
I can see how this might make sense from a numbers point of view. It must be maddening for HMRC to see people withdrawing capital and income from their ISAs entirely tax free (the tax on the money having been paid in full before they entered the wrapper) and it also fits nicely with the new trend for demonising anyone you can tag as remotely rich.
But it is still a very bad idea. Why? Because everyone loves ISAs. Tens of millions of people save into them, understand them and trust them. Why would any government want to mess with a savings vehicle that works that well? If only they could just sometimes let a good thing alone.
PS I also wonder what’s up the idea with capping of totals, rather than contributions. If you wanted to reduce the amount of money in ISAs (which you probably shouldn’t) you’d surely be better to cap the amount going in (cutting the annual allowance or some such). Trying to cap the final outcome – which is dependent on investment returns – just leads to confusion and uncertainty. Just ask anyone trying to figure out the lifetime allowance system for pensions.