ISAs - UK - July 2008

Abstract

Despite fears over the impact of the economic downturn, the ISA market experienced strong growth in 2007/08. Indeed, both value and volume of new ISA sales increased by around 8% in 2007/08, from the levels recorded in the previous tax year. The market has also recently been boosted by changes to the ISA structure, which came into effect in April 2008. These amendments include making ISAs a permanent feature of the savings and investment landscape, as well creating a more flexible and less complex market, in turn addressing a lot of previous criticism.

Therefore, looking forward the general picture for the ISA market seems quite positive. However, closer analysis does reveal some ongoing issues and challenges. Mintel' s consumer research reveals a worryingly low level of awareness about the recent changes to the ISA structure. At the same time, cash ISAs continue to dominate the market, with little evidence of any real increase in appetite for stocks and shares ISAs. While the current economic downturn will do little for investor confidence, evidence is also emerging which suggests that increased pressure on household budgets is reducing the overall capacity to save.

This report examines the key issues in the ISA market in light of these issues and challenges. It considers the current economic climate and specific developments within the ISA market. Data provided by HMRC is used to establish the size of the market, while Mintel' s consumer research and IMA data enable analysis of market share. The report also identifies key trends relating to distribution, brand perception and innovation. Mintel' s consumer research provides an insight into product ownership, and attitudes and behaviours towards ISA products.

Key report topics:

• Cash ISA ownership is increasing strongly, although it remains skewed towards older consumers and those in higher income groups.
• In contrast, there has been only a slight increase in ownership of stocks and shares ISAs, with sales acutely linked to stockmarket performance and overall economic confidence.
• However, sales of ISAs in both value and volume terms increased markedly in 2007/08, although the current uncertain economic climate does not bode well for sales in 2008/09.
• Changes to the ISA regime have been heralded as positive for the market, particularly as they will reduce the complexity and improve the flexibility of ISA products.
• However, awareness of these changes is low and many in the industry do not feel they go far enough in making ISA products attractive to consumers.
• The distribution of cash ISA products is still centred around branch-based accounts, although online channels are growing in influence.
• In the equity ISA market, the development of fund supermarkets has revolutionised distribution, and looks set to become increasingly dominant.