ISAs - UK - August 2009

Abstract

About this report

The ISA market has seen steady growth over the past few years, which has boosted balances. Over 18 million UK adults hold cash or investments in ISAs – assets that are collectively worth over £220 billion. However, a much larger number have savings held outside the ISA wrapper, indicating that there is still scope to expand the market.

With a penetration of 33% among UK adults aged 18+, cash ISAs continue to be much more popular than stocks and shares ISAs. Although take-up of the latter increased in 2008/09, this was largely due to the transfer of PEP funds into ISAs at the start of the tax year, while the value of new subscriptions to stocks and shares ISAs fell by 10% in 2008/09. In contrast, new subscriptions to cash ISAs rose by 11%, boosted by the increase in the cash ISA limit and investors seeking refuge from the turmoil in the stock markets brought about by the banking crisis.

This report examines the impact of the financial crisis and ensuing economic downturn on the shape and size of the ISA market, drawing on a range of data sources. The market overview analysis is complemented by the results of Mintel’s consumer survey, which provide additional insight into patterns of product ownership, as well as attitudes and behaviours towards ISA products.

Key issues

• ISAs are popular – Mintel’s research shows that over 18 million UK adults hold cash or investments in these tax-exempt wrappers. However, there is still scope to expand the market further, by narrowing the ISA gap – this is the gap between the proportion of people with savings and investments, and the proportion of people with an ISA product.
• Moreover, many cash ISA holders fail to invest the full £3,600 permitted each year, while an even greater proportion fail to use any of their equity ISA allowance.
• ISAs were initially intended to encourage lower income groups to get into the saving habit, but it is the higher income groups that tend to make use of their annual ISA allowances.
• Cash ISAs are much more popular than equity ISAs. Most people still prefer to keep the bulk or all of their savings in cash.
• Providers maintain that the reinstatement of the 10% tax credit on dividends would improve the appeal of equity ISAs, particularly among basic rate taxpayers.
• There is a small but significant amount of switching activity in the cash and equity ISA markets, as people look for better rates of return.
• Fund supermarkets are continuing to dominate the sales of equity ISAs, and are now a major force in the savings and investment landscape.