Adrian Murphy

As things stand, far too much ISA wealth is held in cash, which is not what the tax wrapper was originally conceived for. Ultimately, a cash ISA is a waste of the allowance and anything that encourages people to invest for the long term should be welcomed. Billions sitting in cash is bad for the economy, bad for the stock market, and bad for business. If money isn’t being spent it should at least be invested in companies helping to boost growth at home and globally.

Many people see investing as risky, but they don’t understand the risk of holding much of their wealth in cash. Inflation means cash loses value over time and, while the initial rates on cash ISAs may be attractive, many default to a much lower rate after the first year – there are likely many people with cash earning rates far below the rise in the cost of living.

Pensions aside, ISAs are the next best thing as an option for long-term saving – but they need to stay that way. Ideally we would see an increase in the overall allowance, as well as the cash limit being reduced, so savers can still maximise the amount they invest in a tax-efficient wrapper – particularly with the recent reductions to the capital gains tax allowance.

While that may be unlikely, it’s worth remembering that if the ISA allowance had kept pace with inflation since it reached £20,000, by now it would be nearly £27,000. While not many people will have that to save every year, it will still provide an incentive to invest as much as they are able to.

Of course, the devil would be in the detail. If a limit on cash contributions is going to be introduced at some stage, there will need to be guardrails. There is nothing to stop people from opening up a stocks and shares ISA and investing in a money fund, for instance. But it’s just as important that the government doesn’t try to influence how and where people invest their money, as was the case with the ‘British ISA’, which attempted to steer investment choices too narrowly.

There has also been speculation around reform to Lifetime ISAs, with reports suggesting some people are being directed into unsuitable investment strategies and receiving less than they put in because they need to make withdrawals for unexpected circumstances. This is likely to be a function of how complicated these products are, with very specific reasons behind when you can withdraw money and what it is used for.

That said, the intention is right: having a sensible long-term savings vehicle available before retirement is a good idea – especially as the age for accessing pensions continues to rise, which only serves to dissuade people from thinking about how they will support themselves financially in later life.

ISAs are a highly successful financial invention, with 12.4 million subscriptions – excluding Junior accounts – according to the latest available data and around 35% of Scots holding an account. But they can and should be reformed to work better. Encouraging more people to invest their money, rather than have it sit on the sidelines in cash, should only be beneficial for their own financial situation, as well as the UK economy.

Adrian Murphy is CEO of Glasgow-based Murphy Wealth