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Linking ISA limits to inflation a “token gesture”

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by David Masters

Chancellor Alistair Darling’s plans to automatically increase ISA limits in line with inflation are merely a “token gesture”, according to one industry expert.

Andrew Hagger of financial advice site Moneynet said the new measures will cost banks more money to implement than the potential benefits for savers.

“This is a token gesture that is likely to cost providers more to administer than it will actually deliver to beleaguered savers,” Hagger said.

If the ISA limit increased by 2.5% next year, a realistic figure for inflation, then a saver making the most of the increase would earn just £3.83 extra in interest payments, he added.

Darius McDermott, managing director at Chelsea Financial Services, agreed with Hagger’s analysis.

“Linking the ISA allowance to inflation will only serve to keep the tax wrapper from obsolescence, not make it more attractive to investors,” he said.

“If the Chancellor is serious about getting the UK saving and investing again, he will need to raise ISA limits substantially in the coming years.”

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News posted: March 26, 2010

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