'Which?' report slams ISAs as too complicated for savers

ISAs are too complicated and savers are not receiving the correct financial advice to help them decide how best to use their tax-free savingsallowances, according to a report published in Which?, the consumer magazine, today.

ISAs are too complicated and savers are not receiving the correct financial advice to help them decide how best to use their tax-free savingsallowances, according to a report published in Which?, the consumer magazine, today.

Just six months after ISAs were launched to replace Tessa savings accounts and PEPs investment plans, Which? is recommending that theGovernment conducts a radical overhaul of the ISA rules. The magazine also urges that ministers consider scrapping maxi ISAs, the instruments thatallow people to invest annually up to £7,000 tax free in shares.

Which? researchers, who made 53 visits to high street banks, building societies and financial advisory firms, found that most advisers, and inparticular bank and building society staff, struggled to understand, let alone explain, how ISAs work. The magazine says that, in some cases, thisincompetence can lead to savers unknowingly forfeiting some of their tax-free ISA allowance and so paying hundreds of £more than theyneed.

Teresa Fritz, principal researcher at Which?, says out of 20 interviews where a mini-ISA was recommended, only Britannia building society pointedout to researchers that, by taking out a mini-cash ISA, they would more than halve the amount they could invest in tax-free stocks and shares. Shesaid CAT standards, the government-approved benchmarks for ISA products, were hardly ever mentioned and only two of the advisers questionedsuggested using ISAs creatively, by combining both investment and savings plans.

But a spokesman for Barclays, the high street bank, said changing the way that ISAs work would only make the problems of incomprehensionworse. She said: "It took the market place a long time to get used to and to recognise the benefits of PEPs. To change ISAs so soon after they wereintroduced would not be a wise move."

The spokesman also pointed out that the Which? research had been carried out in April and May, the two months immediately after ISAs wereintroduced. She said: "It's up to the Government, the FSA and the industry to stop bickering and get on with it."