You write that equity fund managers are lobbying the chancellor to restrict individual savings accounts (Isas) from holding cash, forcing investors into stocks-and-shares Isas. I suspect high street retailers are missing a trick not conducting their own lobbying to restrict online retailers, which would force us all into the shops more (Report, February 1)!
As a former finance professor, I have long been dismayed at the UK’s low savings rate and despair at any tampering with this tax-free investment wrapper that may reduce it further.
There are so many reasons why individuals might want mostly cash Isas. The young may need to save up for a deposit on a home. Others nearing retirement may want to undertake a long-awaited home repair. Sadly there may be some with medical conditions and more uncertain life expectancy.
Pushing any of the former into equities where a market downturn could coincide with a large cash requirement is horrible financial management. The cash Isa is a great incentive to encourage savings and hopefully, as amounts reach higher levels, those with the flexibility should be educated to consider equities for better, albeit more risky, returns. Though, in basic financial terms, it is easier to take risk for better return when you have more!
Much of the fund manager argument is “waving the flag”. But I know that the £20,000 I put into a fixed-term cash Isa at Lloyds or Aldermore is almost certain to fund a UK small business or personal loan. Whereas the £20,000 I put into a world index fund is likely to see at most £1,000 to £2,000 stay in the UK. Take that to the extreme of forcing me to buy UK-listed shares and if I invest in listed Glencore, what is the likelihood its next mine will be in the UK — ie that any of my money stays here? How much of the FTSE 100 is really in the UK? A cynic might say there is a fee motivation at play here.
Pete Hahn
Emeritus Professor of Banking & Finance
London W9, UK
