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ISAs - UK - August 2009

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.

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Table of contents

  1. Issues in the Market

      • Key issues
        • Market definitions
          • Abbreviations
          • Future Opportunities

            • Scope to expand the market further…
              • … but these are uncertain times
                • Pricing is key
                  • Convenience and accessibility are vital too
                    • Appeal to the mindset of younger adults
                      • Consumer-friendly equity ISAs
                      • Market in Brief

                        • ISA penetration increases
                          • Subscriptions are also up
                            • Wider savings environment
                              • New industry developments
                                • Provider rankings
                                  • ISA distribution mix
                                    • Advertising activity
                                      • The typical ISA subscriber is an AB aged 45+
                                        • Saver behaviour
                                          • Saver attitudes
                                          • Internal Market Environment

                                            • Key points
                                              • Recent changes to simplify the scheme…
                                                • Figure 1: Recent and proposed changes to the ISA scheme, 2004-20
                                              • … have been welcomed by the investment industry…
                                                • … but there’s still scope for improvement say some
                                                  • Allowance upped
                                                    • New scheme structure
                                                      • Figure 2: Illustration of annual investment limits, 2009/10 versus 2010/11
                                                    • ISA transfers to be speeded up
                                                      • Tax relief on equity ISAs a red herring?
                                                        • Calls to reinstate 10% tax credit
                                                        • Broader Market Environment

                                                          • Key points
                                                            • Summary of the main market and macroeconomic developments
                                                              • Less appetite for spending
                                                                • Implication
                                                                  • With interest rates slashed, savers suffer reduced returns
                                                                    • Figure 3: Average annual changes in the bank base rate, CPI and RPI - UK, 2000-09
                                                                  • Implications for savers
                                                                    • Stockmarket turmoil – have we passed the bottom?
                                                                      • Figure 4: FTSE 100 and FTSE All Share – daily index movements, May 2000-May 2009
                                                                    • Implication for investors
                                                                      • The crunch effect
                                                                        • Number of higher-rate taxpayers declined in 2008/09
                                                                          • Figure 5: Number of basic and higher-rate taxpayers, 1998/99-2008/09
                                                                        • Insight and implication
                                                                          • Another target group, the over-50s, are growing in number
                                                                            • Figure 6: Size of the UK population, by age group, 1999-2013
                                                                          • Insight and implication
                                                                          • Competitive Context

                                                                            • Key points
                                                                              • ISAs complement other savings and investment products
                                                                                • Cash ISAs are the second-most popular savings and investment product
                                                                                  • Figure 7: Penetration of ISAs and other savings and investment products, April 2009
                                                                                • Measuring the cash ISA gap
                                                                                  • Market inhibitors
                                                                                    • Cash ISA rates fare poorly against taxable accounts
                                                                                      • Investors shift in favour of bonds
                                                                                      • Strengths and Weaknesses in the Market

                                                                                          • Figure 8: ISAs – strengths, weaknesses, opportunities and threats, 2009
                                                                                      • Who’s Innovating?

                                                                                        • Key points
                                                                                          • Price is the main differentiator
                                                                                            • Rate-led business
                                                                                              • Figure 9: Average month end cash ISA interest rates, May 03-May 09
                                                                                            • Recent new cash ISA launches
                                                                                              • Broad array of investment funds available to retail investors
                                                                                                • Recent investment fund activity
                                                                                                  • LV= launches three funds targeted at different risk profiles
                                                                                                    • New Investec fund seeks to appeal to those who want capital protection
                                                                                                      • Low-charging Vanguard enters the UK investment market
                                                                                                      • Trade Perspective

                                                                                                          • About the participants
                                                                                                            • 2009 ISA season
                                                                                                              • Crisis impact
                                                                                                                • Increase in annual limits welcomed
                                                                                                                  • Mid-year chaos?
                                                                                                                    • Promising outlook
                                                                                                                    • Market Size and Forecast

                                                                                                                      • Key points
                                                                                                                        • £220 billion held in ISAs
                                                                                                                          • Figure 10: Value of funds held in ISAs, 2004-08
                                                                                                                        • New ISA subscriptions rose 5% in 2008/09
                                                                                                                          • Figure 11: Number of ISA accounts and amounts subscribed, 1999-2000-2008/09
                                                                                                                        • Insight and implication
                                                                                                                          • Cash ISA subscriptions increased in 2009/10, while equity ISA subscriptions fell
                                                                                                                            • Figure 12: Number of ISA accounts and amounts subscribed, segmented by type, 1999-2000-2008/09
                                                                                                                          • Implication
                                                                                                                            • Average subscription to equity ISA remained at previous year’s level
                                                                                                                              • Figure 13: Average subscription per account, 1999-2000-2008/09
                                                                                                                            • 2008 saw ISA investors become more cautious
                                                                                                                              • Figure 14: Total net retail unit trust/OEIC sales and net retail ISA sales, 2004-08
                                                                                                                            • Confidence returning?
                                                                                                                              • Winners and losers
                                                                                                                                • ISA market forecast: A mixed bag
                                                                                                                                  • Figure 15: Forecast of new ISA business, by component, 2008/09-2013/14
                                                                                                                                • Factors incorporated
                                                                                                                                • Market Share

                                                                                                                                  • Key points
                                                                                                                                    • Cash ISA market has seen some new entrants over the past couple of years
                                                                                                                                      • M&A activity shakes up the cash ISA rankings
                                                                                                                                        • Figure 16: Provider share of cash ISA customer base, April 2009
                                                                                                                                      • Government-backed providers have grown share
                                                                                                                                        • Figure 17: Top 11 cash ISA providers, by customer share (rebased), 2009
                                                                                                                                      • Insight and implication
                                                                                                                                        • Building societies fare well in the cash ISA market
                                                                                                                                          • Figure 18: Share of cash ISA balances outstanding, by main types of provider, March 2009
                                                                                                                                        • Leading ISA fund managers
                                                                                                                                          • Fidelity tops ISA fund rankings
                                                                                                                                            • Figure 19: Top 15 unit trust/OEIC ISA fund managers, by value of funds under management, 2007-09
                                                                                                                                          • Steady consolidation
                                                                                                                                          • Companies and Products

                                                                                                                                            • Selected company profiles
                                                                                                                                              • Fidelity
                                                                                                                                                • Legal & General
                                                                                                                                                  • Lloyds Banking Group
                                                                                                                                                    • Nationwide Building Society
                                                                                                                                                      • RBS Group
                                                                                                                                                        • Grupo Santander
                                                                                                                                                        • Brand Communication and Promotion

                                                                                                                                                          • Key points
                                                                                                                                                            • Many ISA providers cut back their ISA advertising in 2008/09
                                                                                                                                                              • Figure 20: Total advertising expenditure on ISAs, by product category, 2004/05-2008/09
                                                                                                                                                            • Insight and implication
                                                                                                                                                              • Figure 21: Average monthly adspend on ISAs as a percentage of annual adspend, 2008
                                                                                                                                                            • The press is the preferred media channel
                                                                                                                                                              • Figure 22: Proportional distribution of adspend on ISAs, by main media, 2004/05-2008/09
                                                                                                                                                            • Halifax maintains position as largest ISA advertiser
                                                                                                                                                              • Figure 23: Top 15 ISA advertisers, 2007/08 and 2008/09
                                                                                                                                                          • Channels to Market

                                                                                                                                                            • Key points
                                                                                                                                                              • Cash ISAs are predominately sold direct to consumers
                                                                                                                                                                • IFAs are the top advice source for equity ISA investors
                                                                                                                                                                  • Figure 24: Preferred sources of investment advice, by cash and equity ISA holders, April 2009
                                                                                                                                                                • Equity ISAs: the main routes to market
                                                                                                                                                                  • All channels experienced a decline in gross ISA fund sales in 2008
                                                                                                                                                                    • Figure 25: Gross retail sales of unit trust and OEIC ISAs, by distribution channel, 2004-08
                                                                                                                                                                  • Insight and implication
                                                                                                                                                                    • Fund supermarkets continue to be the dominant sales channel
                                                                                                                                                                      • Figure 26: Proportional representation of gross retail unit trust and OEIC ISA sales, by channel, 2004-08
                                                                                                                                                                    • The rise of the fund supermarkets
                                                                                                                                                                      • What they offer
                                                                                                                                                                        • The leading fund platforms
                                                                                                                                                                        • The Consumer – Value of Investible Assets

                                                                                                                                                                          • Key points
                                                                                                                                                                            • Survey background
                                                                                                                                                                              • Half of UK adults have some level of savings
                                                                                                                                                                                  • Figure 27: Value of savings and other investible assets, April 2009
                                                                                                                                                                                • Wealth increases with age
                                                                                                                                                                                  • Figure 28: Value of savings and other investible assets, by age, April 2009
                                                                                                                                                                                • Insight and implication
                                                                                                                                                                                  • One in four ABs are in the affluent to HNW category
                                                                                                                                                                                    • Figure 29: Value of savings and other investible assets, by gender and socio-economic group, April 2009
                                                                                                                                                                                • The Consumer – ISA Ownership

                                                                                                                                                                                  • Key points
                                                                                                                                                                                    • Cash ISA is the second most popular savings product
                                                                                                                                                                                        • Figure 30: Savings and investment products owned, by age, April 2009
                                                                                                                                                                                      • Consumers favour fixed-rate products
                                                                                                                                                                                        • Take-up of ISAs has increased over the past year…
                                                                                                                                                                                          • Figure 31: Change in ISA penetration between 2008 and 2009
                                                                                                                                                                                        • Insight and implication
                                                                                                                                                                                          • …but there’s scope to expand the market further
                                                                                                                                                                                            • Figure 32: ISA gap assessment, April 2009
                                                                                                                                                                                          • Insight and implication
                                                                                                                                                                                            • 55-64-year-olds use ISAs the most
                                                                                                                                                                                              • Figure 33: Savings and investment products owned, by age, April 2009
                                                                                                                                                                                            • Insight and implication
                                                                                                                                                                                              • Gender variation
                                                                                                                                                                                                • Figure 34: Savings and investment products owned, by gender and socio-economic group, April 2009
                                                                                                                                                                                              • Insight and implication
                                                                                                                                                                                                • ABs really like ISAs
                                                                                                                                                                                                  • Insight and implication
                                                                                                                                                                                                    • Personal wealth is a key determiner of ISA ownership
                                                                                                                                                                                                      • Figure 35: Savings and investment products owned, by level of investible assets, April 2009
                                                                                                                                                                                                    • Insight and implication
                                                                                                                                                                                                      • CHAID analysis identifies older ABs as the main target group for ISAs
                                                                                                                                                                                                        • Figure 36: Target groups identified for the ISA market, April 2009
                                                                                                                                                                                                    • The Consumer – Investor Behaviour

                                                                                                                                                                                                      • Key points
                                                                                                                                                                                                        • Around one in four contributed the maximum to their cash ISA
                                                                                                                                                                                                            • Figure 37: Agreement with statements about ISA usage, April 2009
                                                                                                                                                                                                          • Insight and implication
                                                                                                                                                                                                            • Some customer churn
                                                                                                                                                                                                              • Insight and implication
                                                                                                                                                                                                                • More make regular payments than deposit lump sums
                                                                                                                                                                                                                  • Insight and implication
                                                                                                                                                                                                                    • Over a fifth of savers withdrew money from their cash ISA in 2008/09
                                                                                                                                                                                                                        • Figure 38: Agreement with awareness statement, April 2008
                                                                                                                                                                                                                      • Regular saver products will appeal most to the under-35s
                                                                                                                                                                                                                        • Figure 39: Agreement with statements about ISA usage, by age, April 2009
                                                                                                                                                                                                                      • Insight and implication
                                                                                                                                                                                                                        • Men are much more inclined to deposit lump sums into their cash ISA
                                                                                                                                                                                                                          • Figure 40: Agreement with statements about ISA usage, by gender and socio-economic group, April 2009
                                                                                                                                                                                                                      • The Consumer – Targeting Opportunities

                                                                                                                                                                                                                        • Key points
                                                                                                                                                                                                                          • Instant access is a popular feature
                                                                                                                                                                                                                              • Figure 41: Agreement with statements about ISAs and saving in general, April 2009
                                                                                                                                                                                                                            • Insight and implication
                                                                                                                                                                                                                              • Merely half of all equity ISA investors think ISAs are a great way to save
                                                                                                                                                                                                                                • Insight and implication
                                                                                                                                                                                                                                  • A quarter of 55-64-year-olds say low returns makes saving pointless
                                                                                                                                                                                                                                    • Figure 42: Agreement with statements about ISAs and saving in general, by age, April 2009
                                                                                                                                                                                                                                  • Insight and implication
                                                                                                                                                                                                                                    • One in five ABs think now is a good time to invest in equities
                                                                                                                                                                                                                                      • Figure 43: Agreement with statements about ISAs and saving in general, by gender and socio-economic group, April 2009
                                                                                                                                                                                                                                    • Insight and implication
                                                                                                                                                                                                                                      • Further analysis
                                                                                                                                                                                                                                      • Appendix – Ownership of ISAs

                                                                                                                                                                                                                                          • Figure 44: Ownership of cash and equity ISAs, by demographic, April 2009
                                                                                                                                                                                                                                      • Appendix – Demographic Profile of ISA Subscribers

                                                                                                                                                                                                                                          • Figure 45: Demographic profile of cash and equity ISA subscribers, April 2009

                                                                                                                                                                                                                                      Companies Covered

                                                                                                                                                                                                                                      • Abbey
                                                                                                                                                                                                                                      • Alliance & Leicester
                                                                                                                                                                                                                                      • Alliance Trust Savings Ltd
                                                                                                                                                                                                                                      • Asda Group Ltd
                                                                                                                                                                                                                                      • Aviva Plc
                                                                                                                                                                                                                                      • Bank of England
                                                                                                                                                                                                                                      • Barclays Bank plc
                                                                                                                                                                                                                                      • Birmingham Midshires
                                                                                                                                                                                                                                      • Bradford & Bingley plc
                                                                                                                                                                                                                                      • Britannia Building Society
                                                                                                                                                                                                                                      • British Bankers' Association (BBA)
                                                                                                                                                                                                                                      • Building Societies Association
                                                                                                                                                                                                                                      • Cheltenham & Gloucester plc
                                                                                                                                                                                                                                      • Churchill Insurance
                                                                                                                                                                                                                                      • Clerical Medical Investment Group Ltd
                                                                                                                                                                                                                                      • Clydesdale Bank
                                                                                                                                                                                                                                      • Co-operative Bank
                                                                                                                                                                                                                                      • Co-operative Group
                                                                                                                                                                                                                                      • Co-operative Insurance Society Ltd
                                                                                                                                                                                                                                      • Cofunds
                                                                                                                                                                                                                                      • Coutts & Co
                                                                                                                                                                                                                                      • Derbyshire Building Society
                                                                                                                                                                                                                                      • Direct Line Group Limited
                                                                                                                                                                                                                                      • Dunfermline Building Society
                                                                                                                                                                                                                                      • Egg plc
                                                                                                                                                                                                                                      • F&C Management Limited
                                                                                                                                                                                                                                      • Fidelity Investment Services Limited
                                                                                                                                                                                                                                      • Financial Services Authority (The)
                                                                                                                                                                                                                                      • Financial Times Group
                                                                                                                                                                                                                                      • First Direct
                                                                                                                                                                                                                                      • Fundsdirect
                                                                                                                                                                                                                                      • Gartmore Investment Management plc
                                                                                                                                                                                                                                      • Gfk NOP
                                                                                                                                                                                                                                      • Grupo Santander Central Hispano S.A.
                                                                                                                                                                                                                                      • Hargreaves Lansdown Plc
                                                                                                                                                                                                                                      • HBOS plc (Halifax Bank of Scotland)
                                                                                                                                                                                                                                      • HSBC Private Bank (UK) Limited
                                                                                                                                                                                                                                      • ING Direct
                                                                                                                                                                                                                                      • Intelligent Finance
                                                                                                                                                                                                                                      • Invesco Perpetual
                                                                                                                                                                                                                                      • Investec
                                                                                                                                                                                                                                      • Investment Management Association
                                                                                                                                                                                                                                      • J. Sainsbury
                                                                                                                                                                                                                                      • Jupiter Unit Trust Managers Ltd
                                                                                                                                                                                                                                      • Landsbanki Islands Ltd
                                                                                                                                                                                                                                      • Legal & General Group PLC
                                                                                                                                                                                                                                      • Lloyds Banking Group
                                                                                                                                                                                                                                      • London Stock Exchange plc
                                                                                                                                                                                                                                      • LV=
                                                                                                                                                                                                                                      • Market & Opinion Research International (MORI)
                                                                                                                                                                                                                                      • Marks & Spencer
                                                                                                                                                                                                                                      • National Savings & Investments
                                                                                                                                                                                                                                      • Nationwide Building Society
                                                                                                                                                                                                                                      • NatWest
                                                                                                                                                                                                                                      • Northern Rock plc
                                                                                                                                                                                                                                      • Norwich Union
                                                                                                                                                                                                                                      • Old Mutual plc
                                                                                                                                                                                                                                      • Portman Building Society
                                                                                                                                                                                                                                      • Post Office Limited
                                                                                                                                                                                                                                      • Principality Building Society
                                                                                                                                                                                                                                      • Privilege Insurance
                                                                                                                                                                                                                                      • Prudential plc
                                                                                                                                                                                                                                      • Royal Bank of Scotland Group plc
                                                                                                                                                                                                                                      • Saffron Walden Herts & Essex Building Society
                                                                                                                                                                                                                                      • Scottish Widows Bank plc
                                                                                                                                                                                                                                      • Skandia UK
                                                                                                                                                                                                                                      • Somerfield
                                                                                                                                                                                                                                      • St James' Place Plc
                                                                                                                                                                                                                                      • Tesco Plc
                                                                                                                                                                                                                                      • The National Insurance and Guarantee Corporation Limited
                                                                                                                                                                                                                                      • Threadneedle Investment Services Ltd
                                                                                                                                                                                                                                      • Virgin Money
                                                                                                                                                                                                                                      • Waitrose
                                                                                                                                                                                                                                      • Wm Morrison Supermarkets
                                                                                                                                                                                                                                      • Woolwich plc
                                                                                                                                                                                                                                      • Yorkshire Bank PLC
                                                                                                                                                                                                                                      • Yorkshire Building Society

                                                                                                                                                                                                                                      ISAs - UK - August 2009

                                                                                                                                                                                                                                      £1,995.00 (Excl.Tax)