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ISAs - UK - September 2011

The product that has stepped up as the key consumer draw is the humble ISA. The tax relief given to ISA savings makes it one of the few financial products in the current low interest/high inflation environment which offers consumers a chance of making net gains on their savings. Saving is a priority for many given the constant reminders and inflammatory headlines relating to the pensions crisis, growing university fees, inflation, rising food and household bill costs and the ever increasing cost of oil. Cash ISAs offer savings options across the board to consumers looking to maximise returns on their investments with minimal risk, while stocks and shares ISAs allow them to take their first steps in the world of equity investments.

“ISAs are seen as one of the better savings products to use and one of the simpler investment products to venture into the stock market with. As the interest paid is entirely tax-free the returns on ISAs generally outperform other savings products. Figures from HMRC showing growing ISA volumes and value in 2010/11 show that despite difficult economic conditions consumers value ISAs.”

– Stephanie Seenan, Financial Services Analyst

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Table of contents

  1. Introduction

      • Abbreviations
        • Market definitions
        • Executive Summary

            • The market
              • ISA take-up increased in 2010/11… but the savings landscape remains difficult
                • Figure 1: Cash ISA value, 2006-16
                • Figure 2: Stocks and shares ISA Value, 2006-16
              • Savings ratio rebounds post-recession
                • Figure 3: UK savings ratio, 2000-10
              • Market factors
                • High inflation/low base rate makes saving unattractive
                  • Figure 4: Average annual changes in the bank base rate, CPI and RPI – UK, 2000-10
                • Stockmarket volatility makes stocks and shares ISAs only for the brave and wealthy
                  • Figure 5: FTSE 100 and FTSE All Share – daily index movements, Jan 2000-Jul 2011
                • Companies, brands and innovations
                  • Lloyds Banking Group is the leading ISA provider
                    • Figure 6: Cash ISA market share, by volume, July 2011
                  • HBOS is the top stocks and shares provider
                    • Figure 7: Top 15 unit trust/OEIC ISA fund managers, by value of funds under management, 2009-11
                  • Workplace savings plans to link ISAs to pensions
                    • Junior ISAs offer an opportunity for children’s future savings
                      • The consumer
                        • Consumers use ISAs to save for rainy days and retirement…
                          • … but they’re not using their full ISA allowances
                            • Figure 8: Did you use your full cash ISA allowance in the last tax year?
                          • More than a quarter had opened a new ISA within a few months of the new tax year
                            • What we think
                            • Issues in the Market

                                • Are consumers using their full ISA allowance?
                                  • Why do consumers choose to save with ISAs?
                                    • Who are the major players in the ISA market?
                                      • Will Junior ISAs be taken up as intended?
                                        • Will changes in the advisory landscape impact ISAs?
                                        • Future Opportunities

                                          • Consumer openness and collaboration could see new approaches to saving and investing
                                            • ISAs are a good-news product in a bad-news environment
                                            • Internal Market Environment

                                              • Key points
                                                • A shift towards stocks and shares ISAs?
                                                  • The banks aren’t all convinced
                                                    • ISA switching made easier
                                                      • Are ISAs excluding some sections of society?
                                                        • The IPPR proposes changes to the ISA regime
                                                          • Junior ISAs
                                                            • The problem with Junior ISAs
                                                              • Junior ISAs and Child Trust Funds
                                                                • RDR implementation continues
                                                                  • RDR and the impact on ISAs
                                                                    • How will the RDR changes impact banks?
                                                                      • Bank concerns about switching increasing
                                                                        • Fixed term ISAs exacerbate the issue
                                                                          • Competition and negative margins for the banks
                                                                          • Broader Market Environment

                                                                            • Key points
                                                                              • FTSE Performance
                                                                                • Figure 9: FTSE 100 and FTSE All Share – daily index movements, Jan 2000-Jul 2011
                                                                              • People are using ‘cash parks’ to store their investments until they know where to put it
                                                                                • Savings ratio is now higher than pre- recession
                                                                                  • Figure 10: UK savings ratio, 2000-10
                                                                                • Message on saving not aligned to the reality savers face
                                                                                  • What are consumers doing with their money if they are not saving?
                                                                                    • Figure 11: Most important spending priorities for 2011, January 2011 (figures expressed as a %)
                                                                                  • Debt concerns
                                                                                    • Low base rate, high RPI could see a change in savings methods
                                                                                      • Figure 12: Average annual changes in the bank base rate, CPI and RPI - UK, 2000-10
                                                                                    • Consumer confidence
                                                                                      • Figure 13: Savings intentions and the savings climate: March 2000-June 2011
                                                                                    • Pensions vs ISAs
                                                                                      • Figure 14: ISA Intentions vs. Pension Intentions
                                                                                  • Competitive Context

                                                                                    • Key points
                                                                                      • Savings accounts
                                                                                        • Pension saving could deflect from ISAs
                                                                                          • Notice accounts compete with ISAs to offer best returns
                                                                                            • Figure 15: Average monthly quoted deposit interest rates at banks and building societies, January 2000-May 2011
                                                                                          • Investment products comparison
                                                                                            • Figure 16: Retail investment product sales, year to 31 March 2011
                                                                                          • Chasing high interest rates – where are people putting their money?
                                                                                            • Figure 17: Unit trust and OEIC funds under management, 2004-10
                                                                                        • Strengths and Weaknesses in the Market

                                                                                          • Who’s Innovating?

                                                                                            • Key points
                                                                                              • ISA differentiation
                                                                                                • ‘Early Intervention ISAs’
                                                                                                  • Workplace savings plans
                                                                                                    • Barclays 0% initial charge investment ISA
                                                                                                      • Halifax Promise
                                                                                                        • Nationwide Protected Equity Bond
                                                                                                        • Total ISA Market Size

                                                                                                          • Key points
                                                                                                            • ISA subscriptions rose by 22% in 2010/11…
                                                                                                              • Figure 18: Number of ISA accounts and amounts subscribed, 1999/2000-2010/11
                                                                                                            • …and funds held within ISAs also grew sharply
                                                                                                              • Figure 19: Value of funds held in ISAs, by type of investment, 2005-10
                                                                                                            • Stocks and shares ISAs see big increases in amounts subscribed per account whereas cash ISAs are languishing
                                                                                                              • Figure 20: Average amounts subscribed per account, 1999/2000-2009/10
                                                                                                          • Cash ISA Market Segmentation and Forecast

                                                                                                            • Key points
                                                                                                              • Growth in the cash ISA market falters
                                                                                                                • Figure 21: Number of cash ISA accounts and amounts subscribed, segmented by type, 1999/2000-2010/11
                                                                                                              • Types of cash ISA, 2009-10
                                                                                                                • Figure 22: Types of cash ISA, 2009-10
                                                                                                              • Cash ISA forecast
                                                                                                                • Figure 23: Cash ISA volume forecast, 2006-16
                                                                                                                • Figure 24: Cash ISA value forecast, 2006-16
                                                                                                            • Stocks and Shares ISA Market Segmentation and Forecast

                                                                                                              • Key points
                                                                                                                • Stocks and shares ISAs showing notable growth
                                                                                                                  • Figure 25: Number of stocks and shares ISA accounts and amounts subscribed, segmented by type, 1999/2000-2010/11
                                                                                                                • Types of stocks and shares ISA, 2009-10
                                                                                                                  • Figure 26: Types of stocks and shares ISA, 2009-10
                                                                                                                • ISA sales playing an increasingly important role in retail sales
                                                                                                                  • Figure 27: Total net retail unit trust/OEIC sales and net retail ISA sales, 2005-10
                                                                                                                • Forecast
                                                                                                                  • Figure 28: Stocks and shares ISA Volume, 2006-16
                                                                                                                  • Figure 29: Stocks and shares ISA Value, 2006-16
                                                                                                              • Market Share

                                                                                                                • Key points
                                                                                                                  • Bank share of cash ISA balances growing
                                                                                                                    • Figure 30: Cash ISA balances, by provider, May 2011
                                                                                                                  • Lloyds Banking Group is the leading cash ISA provider
                                                                                                                    • Figure 31: Cash ISA ownership, by banking group and brand, July 2011
                                                                                                                  • UK Funds under management – HBOS is the leading fund manager
                                                                                                                    • Figure 32: Total ISA funds under management January/May 2011
                                                                                                                  • HBOS tops ISA fund rankings, Fidelity falls behind
                                                                                                                    • Figure 33: Top 15 unit trust/OEIC ISA fund managers, by value of funds under management, 2009-11
                                                                                                                • Companies and Products

                                                                                                                  • Company profiles
                                                                                                                    • Barclays
                                                                                                                      • Fidelity
                                                                                                                        • Grupo Santander
                                                                                                                          • Invesco Perpetual
                                                                                                                            • Legal & General
                                                                                                                              • Lloyds Banking Group
                                                                                                                                • Nationwide
                                                                                                                                  • RBS
                                                                                                                                  • Channels to Market

                                                                                                                                    • Key points
                                                                                                                                      • Cash ISAs – simple for consumer and bank
                                                                                                                                        • Figure 34: Product ownership, March 2011
                                                                                                                                      • Stocks and shares ISAs channels to market
                                                                                                                                          • Figure 35: Gross retail ISA sales by sector and distribution channel October 2010-May 2011
                                                                                                                                        • RDR recommendations could see changes in ISA channels
                                                                                                                                          • Figure 36: Number of advised and non-advised ISA sales, 2006-10
                                                                                                                                      • Brand Communication and Promotion

                                                                                                                                        • Key points
                                                                                                                                          • Cash ISAs account for a quarter of savings adspend
                                                                                                                                            • Cash ISAs are the focus
                                                                                                                                              • Figure 37: Total advertising expenditure on ISAs, by product category, 2007-11
                                                                                                                                            • Seasonal spending dominates
                                                                                                                                              • Figure 38: Average monthly adspend on ISAs as a percentage of annual adspend, 2010
                                                                                                                                            • Cash ISA providers look to reach the mass market
                                                                                                                                              • Figure 39: Adspend on Cash ISAs, by media type, 2009-11
                                                                                                                                            • Investment ISA adspend decreasing
                                                                                                                                              • Figure 40: Adspend on other Investment ISAs, by media type, 2009-11
                                                                                                                                            • Lloyds Banking Group tops the adspend tables
                                                                                                                                              • Figure 41: Top 15 ISA advertisers, 2009-11
                                                                                                                                          • ISA Ownership

                                                                                                                                            • Key points
                                                                                                                                              • Note on consumer research
                                                                                                                                                • Half of adults hold savings accounts and a third hold ISAs
                                                                                                                                                  • Figure 42: Savings and investment ownership, July 2011
                                                                                                                                                • Gender differences in ISA approaches
                                                                                                                                                  • Figure 43: ISA ownership, by gender, July 2011
                                                                                                                                                • Older consumers more likely to save with cash ISAs
                                                                                                                                                  • Figure 44: Age-related saving activity cash ISAs, July 2011
                                                                                                                                                • Saving varies widely by household income
                                                                                                                                                  • Figure 45: Savings and Investments by Household Income, July 2011
                                                                                                                                              • Choice of Cash ISA Provider

                                                                                                                                                • Key points
                                                                                                                                                  • Lloyds Banking Group leading cash ISA provider
                                                                                                                                                    • Figure 46: Cash ISA providers, July 2011
                                                                                                                                                  • Nationwide punching above its weight in the notice market
                                                                                                                                                    • Figure 47: Financial services provider, by Cash ISA ownership, July 2011
                                                                                                                                                  • The high street giants have broadened the appeal of ISAs
                                                                                                                                                  • ISA Transfer Activity

                                                                                                                                                    • Key points
                                                                                                                                                      • Low levels of ISA transfer activity
                                                                                                                                                        • Figure 48: ISA transfer activity, July 2011
                                                                                                                                                      • Transfer activity by provider
                                                                                                                                                        • Figure 49: Cash ISA provider, by ISA transfer activity, July 2011
                                                                                                                                                      • Financially savvy – but still reluctant to switch
                                                                                                                                                      • ISA Activity in the Current Tax Year

                                                                                                                                                        • Key points
                                                                                                                                                          • An early surge in cash ISA opening
                                                                                                                                                            • Figure 50: “Have you opened a new cash ISA in the current tax year (i.e. since April 2011)?”, by type of cash ISA owned, July 2011
                                                                                                                                                          • Even the active ISA savers are reluctant to transfer past accounts
                                                                                                                                                            • Figure 51: ISA transfer activity, by ISA activity in the current tax year, July 2011
                                                                                                                                                          • The legacy of a lifetime of saving
                                                                                                                                                          • Cash ISA Allowance Usage

                                                                                                                                                            • Key points
                                                                                                                                                              • Consumers are not making the most of their cash ISA allowance
                                                                                                                                                                • Figure 52: Level of cash ISA contributions, by cash ISA ownership, July 2011
                                                                                                                                                            • Main Reasons for Saving or Investing

                                                                                                                                                              • Key points
                                                                                                                                                                • Short-term savings are key for consumers
                                                                                                                                                                  • Figure 53: Reasons for saving or investing July 2011
                                                                                                                                                                • What other savings methods are consumers using?
                                                                                                                                                                  • Figure 54: Reasons for saving or investing, by most popular savings and investment ownership July 2011
                                                                                                                                                                • Shifting accounts to cover major purchases
                                                                                                                                                                  • Figure 55: Reasons for saving or investing, by ISA transfer activity, July 2011
                                                                                                                                                                • Take care of the emergency fund – then think about returns
                                                                                                                                                                  • Figure 56: Reasons for saving or investing, by ISA activity in the current tax year, July 2011
                                                                                                                                                                  • Figure 57: Reasons for saving or investing, by level of cash ISA contributions, July 2011
                                                                                                                                                              • Targeting Opportunities

                                                                                                                                                                • Key points
                                                                                                                                                                  • A large portion of consumers have no savings or investments
                                                                                                                                                                    • Figure 58: Savings and investment ownership, July 2011
                                                                                                                                                                  • Nationwide converting the multiple account holders
                                                                                                                                                                    • Figure 59: Cash ISA provider, by repertoire of savings and investment ownership, July 2011
                                                                                                                                                                  • Long-term savers are spreading the risk
                                                                                                                                                                    • Figure 60: Reasons for saving or investing, by repertoire of savings and investment ownership, July 2011
                                                                                                                                                                  • How to move beyond the traditional targets
                                                                                                                                                                  • Appendix – Market Size and Forecast

                                                                                                                                                                    • Cash ISA Volume
                                                                                                                                                                      • Figure 61: Best case/worst case cash ISA volume forecast, 2011-16
                                                                                                                                                                    • Cash ISA Value
                                                                                                                                                                      • Figure 62: Best case/worst case cash ISA value forecast, 2011-16
                                                                                                                                                                    • Stocks and shares ISA Volume
                                                                                                                                                                      • Figure 63: Best case/worst case stocks and shares ISA volume forecast, 2011-16
                                                                                                                                                                    • Stocks and shares ISA Value
                                                                                                                                                                      • Figure 64: Best case/worst case stocks and shares ISA value forecast, 2011-16
                                                                                                                                                                  • Appendix –ISA Ownership

                                                                                                                                                                      • Figure 65: Most popular savings and investment ownership, by demographics, July 2011
                                                                                                                                                                      • Figure 66: Next most popular savings and investment ownership, by demographics, July 2011
                                                                                                                                                                  • Appendix – Choice of Cash ISA Provider

                                                                                                                                                                      • Figure 67: Most cash ISA provider, by demographics, July 2011
                                                                                                                                                                      • Figure 68: Next most popular cash ISA provider, by demographics, July 2011
                                                                                                                                                                  • Appendix – ISA Activity in the Current Tax Year

                                                                                                                                                                      • Figure 69: “ ISA transfer activity, by demographics, July 2011
                                                                                                                                                                      • Figure 70: “Have you opened a new cash ISA in the current tax year?”, July 2011
                                                                                                                                                                  • Appendix – Cash ISA Allowance Usage

                                                                                                                                                                      • Figure 71: In the last tax year, did you use your full cash ISA allowance?, July 2011
                                                                                                                                                                  • Appendix – Most Popular Reasons for Saving or Investing

                                                                                                                                                                      • Figure 72: Most popular reasons for saving or investing, by demographics, July 2011
                                                                                                                                                                      • Figure 73: Next most popular reasons for saving or investing, by demographics, July 2011
                                                                                                                                                                      • Figure 74: Repertoire of savings and investment ownership, by demographics, July 2011

                                                                                                                                                                  Companies Covered

                                                                                                                                                                  • Alliance & Leicester
                                                                                                                                                                  • Barclays Bank plc
                                                                                                                                                                  • Birmingham Midshires
                                                                                                                                                                  • Bradford & Bingley plc
                                                                                                                                                                  • Cheltenham & Gloucester plc
                                                                                                                                                                  • Clerical Medical Investment Group Ltd
                                                                                                                                                                  • Grupo Santander Central Hispano S.A.
                                                                                                                                                                  • HBOS plc (Halifax Bank of Scotland)
                                                                                                                                                                  • Kantar Media
                                                                                                                                                                  • Legal & General Group PLC
                                                                                                                                                                  • Lloyds Banking Group
                                                                                                                                                                  • Nationwide Building Society
                                                                                                                                                                  • NatWest
                                                                                                                                                                  • Royal Bank of Scotland Group plc
                                                                                                                                                                  • Scottish Widows Bank plc

                                                                                                                                                                  ISAs - UK - September 2011

                                                                                                                                                                  £1,995.00 (Excl.Tax)