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ISAs - UK - November 2016

“The ISA market is at a turning point. Overall contributions continue to grow driven by the stocks and shares sector of the market, but the number of accounts fell in the last tax year, as low interest rates undermine the incentive to save among many consumers. The introduction of the Personal Savings Allowance also poses a significant challenge for the ISA market, by undermining the main advantage offered over other savings products. However, the ISA market has an opportunity to service more long-term goals, through products like the Lifetime ISA.”

– Jessica Galletley, Financial Services Analyst

This report looks at the following areas:

  • Lifetime ISA could reduce contributions to pension savings
  • Simplifications undermined by launch of new ISAs
  • Personal Savings Allowance: the end of ISAs?

During the 2015/16 tax year, the cash ISA and stocks and shares ISA markets performed very differently. The cash ISA market saw a 4% fall in contributions, whilst the stocks and shares ISA market grew by 20%. The low interest rate environment continues to be challenging for the cash savings market, with consumers lacking the incentive to save. Investments have benefited from this to some extent, as people are forced to look elsewhere in search of better returns for their savings.

However, the long-term future of the ISA market is in doubt, following the introduction of a Personal Savings Allowance (PSA). The PSA undermines the main tax-efficient advantage of saving in an ISA, by giving people a proportion of tax-free earnings on any savings income or interest, regardless of where their savings are held. Despite this, the ISA wrapper is still valued, and continues to be a key instrument used by the government to promote savings activity. Recent developments include the launch of the Innovative Finance ISA and the announcement of a Lifetime ISA.

This Report explores the ISA market, looking at how the market is performing and identifying the key opportunities and challenges it faces. It presents Mintel’s exclusive consumer research, which establishes consumer ownership of savings products, consumer savings priorities and planned uses of ISA savings. It examines consumer attitudes towards risk, and general attitudes towards ISAs and saving. It also explores consumers’ expected usage and awareness of the Lifetime ISA, and attitudes towards the product among the target 18-40 age group.

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Table of contents

  1. Overview

    • What you need to know
      • Products covered in this Report
      • Executive Summary

          • The market
            • Number of accounts continues to fall
              • Figure 1: Number of ISAs and amounts subscribed, 2009/10-2015/16
            • Growth forecast for cash ISA and stocks and shares ISA markets
              • Figure 2: Forecast of total adult cash ISA subscriptions, at current prices, 2010/11-2020/21
              • Figure 3: Forecast of total adult stocks and shares ISA subscriptions, 2010/11-2020/21
            • Personal tax allowance dis-incentivises ISA savings
              • Low rates drive interest in stocks and shares
                • Figure 4: Average monthly quoted cash ISA variable rate and fixed rate, January 2012-August 2016
              • Lifetime ISA set to launch in April 2017
                • Cross-selling is rife in the ISA market
                  • Figure 5: Financial product ownership and cross-sales, July 2016
                • Companies and brands
                  • High street banks and building societies dominate the cash ISA market
                    • Figure 6: Ranking of cash ISAs providers, by proportion of ISA holders, April 2016
                  • Fidelity is leading provider of ISA FUM
                    • Figure 7: Top 10 investment ISA providers, by ISA funds under management, as of May 2016
                  • Mixed approach towards Lifetime ISAs among providers
                    • Innovative Finance ISA brings more firms into the market
                      • The consumer
                        • Nearly half of UK adults have an ISA
                          • Figure 8: Savings product ownership, September 2016
                        • Creating a savings ‘buffer’ is a priority…
                          • Figure 9: Savings goals over the next five years, September 2016
                        • …but ISAs are preferred for longer-term goals
                          • Figure 10: Planned use of ISA savings, September 2016
                        • Offering guidance could increase consideration of risk-based products
                          • Figure 11: Attitudes towards risk with savings and investments, September 2016
                        • People like the idea of the Lifetime ISA…
                          • Figure 12: Awareness and interest in Lifetime ISAs, September 2016
                        • …but the restrictions will put people off
                          • Figure 13: Concerns about using a Lifetime ISA, September 2016
                        • What we think
                        • Issues and Insights

                          • Lifetime ISA could reduce contributions to pension savings
                            • The facts
                              • The implications
                                • Simplifications undermined by launch of new ISAs
                                  • The facts
                                    • The implications
                                      • Personal Savings Allowance: the end of ISAs?
                                        • The facts
                                          • The implications
                                          • The Market – What You Need to Know

                                            • Number of accounts continues to fall
                                              • Growth forecast for cash ISA and stocks and shares markets
                                                • Personal tax allowance dis-incentivises ISA savings
                                                  • Lifetime ISA set to launch in April 2017
                                                    • Cross-selling is rife in the ISA market
                                                    • Market Size and Forecast

                                                      • Number of accounts subscribed to continues to fall
                                                        • Figure 14: Number of ISAs and amounts subscribed, 2009/10-2015/16
                                                      • Cash ISAs continue to hold greater share of the market
                                                        • Figure 15: Number of ISAs and amounts subscribed, segmented by component type, 2009/10-2015/16
                                                      • Stocks and shares see average subscription rise by 28%
                                                        • Figure 16: Average subscription per account, 2009/10-2015/16
                                                      • Stocks and shares ISAs see biggest rise for cash on deposit
                                                        • Figure 17: Value of funds held in adult ISAs, by type of investment, 2012/13-2015/16
                                                      • Cash ISA market forecast to reach £71.5 billion
                                                        • Figure 18: Forecast of total adult cash ISA subscriptions, at current prices, 2010/11-2020/21
                                                        • Figure 19: Forecast of total adult cash ISA subscriptions, at current prices, 2010/11-2020/21
                                                      • Stocks and shares ISA market forecast to reach £30.9 billion
                                                        • Figure 20: Forecast of total adult stocks and shares ISA subscriptions, 2010/11-2020/21
                                                        • Figure 21: Forecast of total adult stocks and shares ISA subscriptions, 2010/11-2020/21
                                                      • The impact of the EU Referendum vote
                                                          • Figure 22: Post-Brexit alternative market scenarios for the value of total adult ISA subscriptions, at current prices, 2015/16-2020/21
                                                          • Figure 23: Detailed Post-Brexit scenarios for the value of total adult ISA subscriptions, at current prices, 2015/16-2020/21
                                                        • Forecast methodology
                                                        • Market Drivers

                                                          • Savings ratio continues to fall
                                                            • Figure 24: Household savings ratio, Q1 2011-Q2 2016
                                                          • Rising cost of living will affect people’s ability to save…
                                                            • …whilst low interest rates mean those who can lack an incentive
                                                              • Figure 25: Bank of England base rate and CPI (monthly % change) – UK, January 2011-August 2016
                                                            • Brexit vote has had little impact on confidence
                                                              • Figure 26: Financial confidence index, January 2009-October 2016
                                                            • Low rates drive interest in stocks and shares
                                                              • Figure 27: Average monthly quoted cash ISA variable rate and fixed rate, January 2012-August 2016
                                                            • Help to Buy terms cause confusion
                                                            • Regulatory and Legislative Changes

                                                              • Personal tax allowance dis-incentivises ISA savings
                                                                • Cash savings market study follow-up
                                                                  • Lifetime ISA set to launch in April 2017
                                                                    • Innovative Finance ISA investment range expanded
                                                                      • ISA annual subscription limit set to increase
                                                                      • Channels to Market

                                                                        • Cross-selling is rife in the ISA market
                                                                          • Figure 28: Financial product ownership and cross-sales, July 2016
                                                                        • People with a higher savings value present an opportunity for alternative providers
                                                                          • Figure 29: Cash ISA ownership and cross sales, by value of total savings and investments, July 2016
                                                                        • Investment experts preferred for stocks and shares
                                                                        • Companies and Brands – What You Need to Know

                                                                          • High street banks and building societies dominate the cash ISA market
                                                                            • Mixed approach towards Lifetime ISAs among providers
                                                                              • ISA providers abandon new rules
                                                                                • ISA advertising spend rises for the first time since 2011/12
                                                                                • Market Share

                                                                                  • High street banks and building societies dominate the market
                                                                                    • Figure 30: Ranking of cash ISAs providers, by proportion of ISA holders, April 2016
                                                                                  • Investors prefer specialist providers
                                                                                    • ‘Other’ providers increase share
                                                                                      • Figure 31: Top 10 investment ISA providers, by ISA funds under management, as of May 2016
                                                                                  • Competitive Strategies

                                                                                    • Mixed approach towards Lifetime ISAs among providers
                                                                                      • Innovative Finance ISA brings more firms into the market
                                                                                        • ISA providers abandon new rules
                                                                                          • Improving personal financial management to increase savings
                                                                                          • Advertising and Marketing Activity

                                                                                            • ISA advertising spend rises for the first time since 2011/12
                                                                                              • Figure 32: Total above-the-line, online display and direct mail advertising expenditure on ISAs, by component type, 2011/12-2015/16*
                                                                                            • Press no longer dominates adspend
                                                                                              • Figure 33: Total above-the-line, online display and direct mail advertising expenditure on ISAs, by media type, 2015/16*
                                                                                            • Cash ISA spend growth propelled by some key spenders
                                                                                              • Figure 34: Top 10 recorded above-the-line, online display and direct mail advertisers of cash ISAs, 2011/12-2015/16
                                                                                            • Aviva tops list for stocks and shares ISA spend
                                                                                              • Figure 35: Top 10 recorded above-the-line, online display and direct mail advertisers of stocks and shares ISAs, 2011/12-2015/16
                                                                                            • Nielsen Ad Intel coverage
                                                                                            • The Consumer – What You Need to Know

                                                                                              • Nearly half of UK adults have an ISA
                                                                                                • Creating a savings ‘buffer’ is a priority…
                                                                                                  • …but ISAs are preferred for longer-term goals
                                                                                                    • Offering guidance could increase consideration of risk-based products
                                                                                                      • People like the idea of the Lifetime ISA…
                                                                                                        • …but the restrictions will put people off
                                                                                                        • Savings Product Ownership

                                                                                                          • Nearly half of adults own an ISA
                                                                                                            • Figure 36: Savings product ownership, September 2016
                                                                                                          • Cash ISAs are the most popular form of ISAs
                                                                                                            • Stocks and shares ISAs are much less common
                                                                                                              • Figure 37: Savings product ownership, by value of savings and investments, September 2016
                                                                                                            • ISAs should be a first-choice savings product
                                                                                                              • Figure 38: Repertoire of different types of savings and investment product ownership, September 2016
                                                                                                          • General Motivations for Saving

                                                                                                            • Half are saving for emergencies/ unexpected events
                                                                                                              • Figure 39: Savings goals over the next five years, September 2016
                                                                                                            • Lifetime ISA will struggle to attract retirement savings
                                                                                                              • Stocks and shares ISAs more popular among those with longer-term savings goals
                                                                                                                • Figure 40: Savings goals over the next five years, by savings product ownership, September 2016
                                                                                                            • Planned Use of ISA Savings

                                                                                                              • ISAs used for a combination of short and long-term goals
                                                                                                                • Figure 41: Planned use of ISA savings, September 2016
                                                                                                              • Lifetime ISA could attract a significant proportion of ISA savings
                                                                                                                • Figure 42: Planned use of ISA savings, by age, September 2016
                                                                                                              • Stocks and shares ISAs dominated by retirement savings
                                                                                                                • Figure 43: Planned use of ISA savings, by ISA product ownership, September 2016
                                                                                                              • People would benefit from clarifying their ISA savings goals
                                                                                                                • Figure 44: Repertoire of planned use of ISA savings, September 2016
                                                                                                            • Attitudes towards Risk

                                                                                                              • Majority are unwilling to take risks with their savings
                                                                                                                • Figure 45: Attitudes towards risk with savings and investments, September 2016
                                                                                                              • Target financially confident Millennials
                                                                                                                • Figure 46: Agreement with the statement ‘I would be interested in taking more risk but need some guidance to do so’, by age, September 2016
                                                                                                              • Innovative Finance ISA will attract high-value savers
                                                                                                                • Figure 47: Agreement with the statement ‘I'm interested in exploring alternative finance products that could offer a better return (investing in peer-to-peer lending, crowdfunding)’, by value of savings, September 2016
                                                                                                            • Attitudes towards ISAs and Saving

                                                                                                              • Instant access is an important account feature
                                                                                                                • Figure 48: Attitudes towards ISAs and saving, September 2016
                                                                                                              • There is an opportunity to increase active ISA contributions
                                                                                                                • Figure 49: Attitudes towards ISAs and saving, by ISA product ownership, September 2016
                                                                                                              • Alternative ISA holders find them complicated
                                                                                                                • Low interest rates pose an opportunity for the stocks and shares market
                                                                                                                • Awareness and Expected Usage of the Lifetime ISA

                                                                                                                  • The majority have heard of the Lifetime ISA
                                                                                                                    • Figure 50: Awareness and interest in Lifetime ISAs, September 2016
                                                                                                                  • 24-27-year-olds are a prime target
                                                                                                                    • Figure 51: Awareness and interest in Lifetime ISAs, by age, September 2016
                                                                                                                  • Providers need to communicate benefits among the self-employed
                                                                                                                    • Figure 52: Awareness and interest in Lifetime ISAs, by working situation, September 2016
                                                                                                                • Attitudes towards Lifetime ISAs

                                                                                                                  • Lifetime ISA provides cross-selling opportunity
                                                                                                                    • Figure 53: Attitudes towards Lifetime ISAs, September 2016
                                                                                                                  • Is it appropriate to save for a home and retirement together?
                                                                                                                    • Lifetime ISAs pose a threat to pension contributions…
                                                                                                                      • Figure 54: Considerations for savings in a Lifetime ISA, September 2016
                                                                                                                    • …but the restrictions will be off-putting for many
                                                                                                                      • Figure 55: Concerns about using a Lifetime ISA, September 2016
                                                                                                                  • Appendix – Data Sources, Abbreviations and Supporting Information

                                                                                                                      • Abbreviations
                                                                                                                        • Consumer research methodology
                                                                                                                        • Appendix – Value of Savings

                                                                                                                            • Figure 56: Value of savings and investments, September 2016
                                                                                                                        • Appendix – Market Size and Forecast

                                                                                                                          • Best- and worst-case forecasts for cash ISA subscription value
                                                                                                                            • Figure 57: Best- and worst-case forecasts for total adult cash ISA subscriptions, at current prices, 2015/16-2020/21
                                                                                                                          • Best- and worst-case forecasts for stocks and shares ISA subscription value
                                                                                                                            • Figure 58: Best- and worst-case forecasts for total adult stocks and shares ISA subscriptions, at current prices, 2015/16-2020/21
                                                                                                                          • Cash ISA volume forecast
                                                                                                                            • Figure 59: Market forecast for number of adult cash ISA subscriptions, 2010/11-2020/21
                                                                                                                            • Figure 60: Best- and worst-case forecasts for total number of adult cash ISA subscriptions, 2015/16-2020/21
                                                                                                                          • Stocks and Shares ISA volume forecast
                                                                                                                            • Figure 61: Market forecast for number of adult stocks and shares ISA subscriptions, 2010/11-2020/21
                                                                                                                            • Figure 62: Best- and worst-case forecasts for number of adult stocks and shares ISA subscriptions, 2015/16-2020/21
                                                                                                                          • Forecast Methodology

                                                                                                                          Companies Covered

                                                                                                                          To learn more about the companies covered in this report please contact us.

                                                                                                                          ISAs - UK - November 2016

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