Nothing says an election is looming more than a raft of proposed policies that have been collecting dust on think tank shelves for years . UK Chancellor of the Exchequer Jeremy Hunt has been dropping heavy hints of reforms and enhancements targeted at Conservatives\u2019 core voters \u2014 namely people who follow changes in pensions and savings. The underlying theme is Buy UK equities.<\/p>\n
Hunt will seek to address getting UK savers to stop hoarding cash and making it easier for them to shift that into UK-domiciled stocks. Just as important will be the opposition Labour party\u2019s response to any changes, as it\u2019s the firm favorite to form the next government. Be prepared for an altered landscape. There just might be some common ground though.<\/p>\n
First and foremost is to get consumers to see the flagship non-pension investment vehicle \u2013 Individual Savings Accounts (ISAs) \u2013 as more than simply a tax-advantaged depositary. Government and regulators alike have frequently expressed their frustration that so many people view cash ISAs as long-term investments. While cash is indeed a suitable vehicle for short-term savings, many of Britain\u2019s least sophisticated investors are missing out on the opportunity to build wealth by not taking some stock market risk.<\/p>\n
Secondly, both the Conservative and Labour parties have been covetously eyeing pension savings as a means of boosting investment in British industry. Being pragmatic, it would be easier to Make UK Great Again by improving ISAs, than by twisting the arms of more sophisticated pension investors. As much as three-quarters of the \u00a3800 billion ($1 trillion) invested currently in ISAs languishes unproductively in cash. What form these changes take is a matter of conjecture but increasing the annual \u00a320,000 limit \u2014 if placed in UK equities \u2014 is a red-hot favorite.<\/p>\n
Additionally, while it is possible to switch from a cash ISA into stocks, few bother. So expect measures to either make switching easier, or simply to allow investors to more easily comingle cash and stocks in the same account rather than having separate pots for each tax year.<\/p>\n
The third issue is considerably more complex. Over and above the confusing array of products, ISAs also stack up poorly compared to pensions. Recent rule changes have increased the attractiveness of pensions and raised the annual allowance to \u00a360,000 from \u00a340,000, while scrapping the lifetime limit on contributions. Added to which, pension pots can currently be passed on free of inheritance tax, making them attractive estate management vehicles for wealthier individuals. This last point is almost certainly something that the Labour party will seek to address if elected.<\/p>\n