By GB News (Politics) | Created at 2025-03-17 08:57:19 | Updated at 2025-03-17 17:41:53
8 hours ago
Pressure is mounting to scrap cash ISAs as calls grow for a major overhaul of the UK’s savings system.
A major investment platform has put forward a radical proposal to replace traditional cash and shares ISAs with a new, more flexible system—one that could change the way millions manage their savings.
Chancellor Rachel Reeves is weighing up reforms to encourage greater stock market investment, raising questions about what the future of tax-free saving could look like.
There have been rumors of a potential Cash ISA limit cut from £20,000 to £4,000. While no immediate changes are expected, whispers of a long-term shake-up are growing louder.
Jon Cleborne, chief executive of Vanguard Europe, warned against abrupt changes to the current £20,000 annual limit.
He said: "A hard overnight change could be disruptive," adding that it would "cause anxiety to savers."
The investment giant argues that while reducing the cash ISA limit may be desirable eventually, any changes should be signalled in advance and introduced gradually.
Vanguard's stance differs from other investment houses including Schroders and Fidelity, which have called for an immediate cut to the annual allowance.
Vanguard is proposing abolishing cash ISAs and shares ISAs and replacing them with a Combined ISA or Cisa.
This new vehicle would hold both cash deposits and shares in the same pot.
Consumers could shift "seamlessly" between cash and shares depending on their goals and risk appetite.
Cleborne said many unsophisticated would-be investors were put off by the complexity of current ISA options.
He said "Every decision you put in front of an investor is a friction point. The more friction points, the more likely you are to lose people."
He argued that savers often end up doing nothing because they're paralysed by the choice between cash and shares ISAs.
Vanguard published its first official figures for Britain in 2024, revealing unprecedented growth in the UK market.
The company has won 145,000 new UK customers, almost certainly more than any other platform.
This compares to 88,000 recruited by industry leader Hargreaves Lansdown in the 12 months to September 2024.
Assets under management grew by 47 per cent to £28 billion. UK customer numbers now stand at 717,000.
About 75 per cent of Vanguard's UK accounts are shares-based ISAs. These currently pay interest of 2.2 per cent on cash balances.
Vanguard Europe is part of the giant Pennsylvania-based Vanguard Group, which specialises in low-cost index tracking funds.
The proposed Cisa is likely to face strong opposition from building societies and banks.
Many of these institutions have no capacity to offer shares options alongside cash products. They have also argued that any reduction in the cash ISA limit would affect their funding. This could potentially force up mortgage rates, they claim.
Vanguard said there was no read-across to what interest a Cisa might pay on cash balances. The company's approach stands in stark contrast to competitors like Schroders and Fidelity.
While these firms advocate for immediate cuts to push consumers toward share investments, Vanguard favours a more gradual transition through its combined product approach.
