2 July 2014
Investors will be able to pocket their profits and move their tax-free savings into cash for the first time.
This radical change, which is a key part of Chancellor George Osborne’s flagship Super Isa policy, has been widely heralded as a major boost for savers.
It means nervous investors can move out of shares — and protect the money they’ve made before they retire or buy a house.
Transfer maze: Concerns are being raised that transferring from an investment Isa into a cash Isa may be fraught with difficulties
But concerns are being raised that transferring from an investment Isa into a cash Isa may be fraught with difficulties.
The root of the issue seems to be confusion over how funds will be transferred from a share Isa run by an investment company to a cash Isa run by a bank or building society.
These organisations do not have similar computer systems. So, while currently you can transfer a cash Isa from one big name to another electronically, this largely won’t be possible for share-to-cash Isa transfers.
A transfer from one cash Isa to another takes on average about eight days — similar to a switch from cash to shares.
But industry guidelines published last week revealed that investors must wait 26 working days (that’s 36 days in total) for their money to be moved from an investment Isa to a cash Isa. And during this five-week hold-up, no interest will be paid.
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Much of this delay will be down to administration, as investment companies try to figure out exactly how much money to transfer, then manually post cheques to the banks.
It’s going to be particularly confusing if you want to sell just some units of a fund, and keep the rest invested. Extra delays are likely, experts warn, as banks, building societies and fund managers adjust to investors selling out of shares into cash.
This will be an administrative burden many of the investment houses have never faced before.
Banks have already been forced to hire extra staff and introduce specialist training to cope with demand. There are also fears that chaotic backlogs will build up and leave customers hundreds of pounds out of pocket.
Carol Knight, a director at savings and investment association Tisa, warns that this week’s Super Isa launch is a ‘complete unknown’, which could cause problems.
‘If the numbers of shares to cash switchers who come forward are low, then I think the system will be able to manage. But if they’re high, it could get clogged up,’ she says.
If you’re transferring from one cash Isa to another, things should be relatively straightforward. This system has been heavily monitored since 2008, when Money Mail uncovered severe delays in the system.
Problems included transfer requests left sitting in mail bags for days on end, savers losing interest while cheques were in the post, and paperwork being mislaid.
If you’re one of the millions set to take advantage of this week’s changes, follow our six steps to success to avoid any Super Isa shocks.
STEP 1: PICK THE RIGHT ISA FOR YOU
If you’ve had tax-free cash tied up in funds for years, don’t rush into the first cash Isa offered by your High Street bank or building society.
Plenty of smaller societies, challenger banks and new entrants are shaking up the market or paying better rates.
You can sell your funds and temporarily leave the money sitting in cash in your Investment Isa. Don’t leave it in there too long, though, as it will earn next to nothing.
Choose the cash Isa that suits you best — and pick the highest rate you can find.
Be aware, though, that not all the best-paying Isas accept transfers, so the good deal you spotted on offer at Nationwide Building Society may not actually be one you can put money into, unless it is new savings.
It may seem outrageous that banks are allowed not to accept some types of savings, but it is legal. Fortunately, the best payer (on fixed rates, at least) is Virgin Money, and it accepts transfer and new savers.
STEP 2: BEWARE OF EXIT PENALTIES
Cash Isa providers have long been barred from charging you a fee for transferring your money and closing an account.
But, sadly, this is not the case for investment Isas.
So, when you sell your funds, you may be hammered by a charge to leave.
Earlier this year, we revealed how many share Isa providers will hit investors with fees of up to £175 if they move their money to a rival firm.
This is particularly likely if you use a so-called fund supermarket, such as TD Direct Investing or AJ Bell Youinvest, and switch to a rival to invest cheaply in funds.
Although most say they won’t levy a charge for transferring your equity Isa money to a building society or bank account, some will charge you to close the account.
These include Hargreaves Lansdown, which charges £25.
The penalty could also cause you further delays.
Unless you’ve expressly indicated you’re aware of the penalty, your old provider may have to go back and check that you understand the fee you’ll have to pay.
If you are charged a fee, you should complain. Money Mail has heard from readers who’ve had the charge overturned after threatening to take their old Isa provider to court — stating Unfair Terms and Conditions.
Just as with bank overdraft charges, these fees are supposed to reflect only the cost of administering your request.
STEP 3: SET THE TRANSFER CLOCK
Once you’ve weighed up whether you want to transfer, and the associated costs, it’s time to start the transfer. Find the best rate by searching online or checking at your bank or building society.
When you’re happy with the most suitable deal, ask the provider to start the switch.
You’ll need to sign a document called a Stocks And Shares Isa Transfer Authority form — and may also be asked to fill in a separate transfer instruction, depending on the provider.
This is then sent to your old share Isa provider — this could be the fund manager, your discount broker or fund supermarket, or an independent financial adviser.
As soon as you sign the transfer form, a clock starts ticking.
The bank or building society has five working days to administer your request and send it to the firm that holds your shares Isa.
STEP 4: SELL YOUR OLD SHARES ISA
Once your share Isa provider receives the form, it has 16 days to act. And the day it arrives, staff must cash in your investments.
If it arrives after midday, the investments won’t be cashed in until the following day, as most ‘redemption’ dealing is done at noon.
How long this fund-selling process takes will depend on which funds you have and where you’re invested.
You may have money in five different funds at five different fund companies, each holding different kinds of stocks.
For each one of these, your Isa provider may have to generate a separate cheque — this will depend on each fund manager’s internal settlement department.
In particular, if you’ve got older PEP funds on account as well as your Isa, then that will probably trigger another cheque too. This is because many funds were set up using different software to Isas.
If you hold an income fund, there may be a dividend payment on top, and this could take some time to calculate and be sent on. This would require another cheque.
‘Not all shares are traded daily —some may only be valued and traded weekly or fortnightly,’ warns a source.
‘And, if a variety of equities or funds are in the shares Isa, this may mean they can’t all be sold at the same time — leaving cash to be pooled and paid at a later date when everything is finalised.’
Eventually, after 16 days, all this money should be sitting in your old share Isa account, ready to be transferred. Once that happens, the cheque must be posted within 24 hours.
The rules also stress that multiple payments from different funds should not be ‘unduly delayed’.
STEP 5: CHECK UP ON YOUR TRANSFER
There’s nothing to stop you calling up to check on the transfer’s progress. Don’t be shy about phoning to ensure all is going smoothly.
After all, it’s your life savings, and nobody else is going to treat your cash as carefully as you.
If it looks as if your transfer is going to take longer than 26 working days, you must be notified after 21 days.
You should be told why the delay has happened, what is being done about it — and how long before it is likely to be solved.
You’ll be sent a letter and, at this point, you should also be given a new transfer deadline.
During this delay, you will lose out on any interest you would have been earning in the new cash account.
If ten days pass from your first request for a transfer, and your bank has not heard from your old shares Isa provider, it must begin chasing it on your behalf.
If delays start to pile up, and you look like being seriously out of pocket, then it’ll be worth checking this deadline was properly met by both sides.
STEP 6: START EARNING MORE
Once the cheque finally arrives at your new bank or building society, staff have three working days to put the money into your account.
If your funds are late and still haven’t arrived by the revised deadline, you’ll need to lodge a formal complaint with your bank or building society to find out what’s happened.
A probe into the delay should follow — and it mustn’t take more than eight weeks to resolve.
If you’re still not happy with its conclusion, you can take up the matter with the free Financial Ombudsman Service at financial-ombudsman.org.uk.
The banks, building societies and investment houses are planning to hold weekly meetings to discuss how the Isa transfer process is working.
City regulator the Financial Conduct Authority says it will monitor these to ensure the new rules are being met.
Read More: http://www.dailymail.co.uk/money/saving/article-2677031/How-stop-nest-egg-getting-lost-Isa-transfer-maze.html