Five priorities for the next government to help investors and pension savers

With the general election set to take place on 4 July, interactive investor, the UK’s second-largest direct-to-consumer investment platform, has outlined five key priorities for the incoming UK government to help investors and pension savers.

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1) Stamp out Stamp Duty on UK shares

interactive investor has long called for the removal of stamp duty on trading UK shares; a tax (levying 0.5%) which doesn’t apply to foreign shares or funds.

Recent polls, which surveyed almost 2,000 investors overall, by interactive investor revealed:

• 82% of investors polled said stopping the stamp on UK shares would encourage more investment in UK listed companies 
• 57% of investors polled said stamp duty would make them think twice about investing in UK shares in the future
• Almost four in ten (37%) investors surveyed said they had decided against investing in UK shares in the past because of stamp duty

Richard Wilson, CEO, interactive investor, says: “The stamp duty on UK shares is a pernicious tax that penalises listed companies that help put the ‘great’ in British business and UK investors seeking to back them.

“Higher transaction costs due to stamp duty also undermines market liquidity - the lifeblood of an efficient stock market - leading to lower economic growth and driving flows to other markets and products.

“We need the incoming government to recognise just how important this problem is, not only for the health of our markets, but also for our nation of investors. As the UK grapples to maintain its competitiveness, stamp duty is a big barrier to investment and growth, damaging the health of the broader UK economy.

“By creating a more welcoming environment for UK investment, the abolition of stamp duty would have huge benefit to UK markets and the wider economy."

2) Simplify a confused and complicated ISA regime 

The ISA is a UK success story, with around 22 million adults in the UK holding savings and investments in an ISA, valued at approximately £741.6 billion.

However, the current landscape of ISA options and varying contribution limits (Cash ISA/Stocks and Shares ISA/Lifetime ISA/Innovative Finance ISA/Junior Cash ISA/Junior Stocks and Shares ISA/Help to Buy ISA (closed to new applications) with a potential British ISA on the way), is bloated, causing confusion and undermining confidence for savers. interactive investor calls for the simplification and consolidation of existing ISA choices into Investment ISAs (including Junior ISAs) and cash ISAs, providing clarity for investors and fostering more informed decision-making.

Richard Wilson, CEO, interactive investor, says: “Once a simple choice between a stock and shares ISA or cash only, the ISA regime has become as clear as mud over the years. The complexity of the current bloated system confuses investors and creates inertia rather than confidence. Does anyone really believe the current muddle promotes better saving? We need a simple ISA.”

3) Allow foreign currencies to be held in ISAs

interactive investor believes that investors should be allowed to hold foreign currency other than sterling in ISA accounts. As well as reducing foreign exchange costs for current international ISA traders, this change would empower more investors to take positions reflective of the global economic landscape.

Myron Jobson, Senior Personal Finance Analyst at interactive investor, says: “Foreign currencies other than sterling can be held in trading accounts and SIPPs – so why not stocks and shares ISAs? It defies logic and needs to be rectified. Why should ISA investors be penalised with this added foreign exchange cost burden? It seems such an obvious thing to fix and fix now. We can’t understand why it keeps being ignored.

“While not without risk, holding foreign currencies within an investment account can be a strategic move, allowing investors to avoid the cost of converting currencies when trading internationally, hedge against currency depreciation of the pound and help better diversify their investment portfolio.

“Making this adjustment would be straightforward, incur no loss in revenue for the Treasury while providing informed retail investors willing to accept the risk of currency value fluctuations another avenue for greater portfolio diversification and the potential for higher returns.”

4) Remove VAT on SIPP charges

interactive investor believes that the current tax system is unfair when it comes to tax on pension charges. While ISA platform charges are free from VAT, VAT is currently charged on SIPP platform charges.

interactive investor is calling for this unfair and lopsided tax on pension investment to be abolished.

Alice Guy, Head of Pensions and Savings at interactive investor, says: “The incoming government will want to encourage retirement saving and yet there is an extra tax on pension saving. Building wealth for retirement is a necessity, not a choice and it’s essential that pension saving be as attractive as possible.

“We need a level playing field between pension and ISA saving, and charging more tax on pension platform charges is an indirect drag on performance and retirement wealth. This is an unfair and nonsensical tax, and it needs to go.”

5) Proceed with ‘pot for life’

interactive investor research reveals the scale of the multiple pension pot problem - one in five 18–34-year-olds already have five or more pension pots, compared to one in 20 over 55-year-olds. (Poll carried out by Opinion July 2023 as part of Show Me My Money pension research, based on a nationally representative sample of 2,000 adults).

Alice Guy, Head of Pensions and Savings at interactive investor, says: “The new lifetime pension proposals could be a game changer for the UK pension system, but changes could take years to implement with many practical details to iron out. In the meantime, we’re stuck with a clunky system where pension savers change pension provider each time, they move job and build up multiple pension pots across their working life.

“It is crucial that any future changes take into account the needs of engaged and self-directed pension consumers, that consumer choice is not restricted and value for money for all is a key focus.

“The good news is that you don’t need to wait for the lifetime pension to take control of your pension wealth. In fact, thousands of pension savers are already taking action to get interactive with their pension, consolidating their workplace and private pensions, and potentially saving thousands in pension fees in the process.”