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UK ISA Market Research Report - September 2012

Some questions answered in the 'ISA Market Research Report' include:

  • How will the ISA market cope with the end of Baby Boomer contributions?
  • How can workplace ISAs work alongside occupational pensions?
  • How will the RDR change the stocks and shares ISA market?
  • Has the Junior ISA failed?

Since the height of global financial crisis in 2008, financial services and products have not been able to step out of the spotlight. Never before has there been such attention paid to an area for such a long period of time. The result of this intense scrutiny is a more informed consumer, but financial service providers are still faced with the challenge of needing to secure deposits from consumers in an environment in which a low base rate and high inflation make differentiation an arduous task.

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.

This report examines the ISA market for both cash and stocks and shares ISA and considers the major players and any innovations in the market as well as Mintel’s consumer research which looks at consumer behaviour with regard to ISA in terms of cash ISA market share, transfer activity, allowance usage and the main drivers for saving and investing.

An individual savings account (ISA) is effectively a ‘wrapper’, which can hold a range of investments, providing tax benefits (i.e. all investments held within an ISA are exempt from income and capital gains tax). ISAs were launched by the UK government in April 1999 to replace tax-exempt special savings accounts (TESSAs) and personal equity plans (PEPs). They were created as part of an ongoing government strategy to encourage people to save.

The main investment types that can be held in an ISA are referred to as ‘components’. Originally, the ISA comprised three components: cash, stocks and shares and life insurance. However, the life insurance component was merged with the stocks and shares component in April 2005.

The two main product types are:

Cash ISAs are low-risk investments, which are ideal for short-term savings, especially if individuals want easy access to their money. There are many varieties of cash ISA. Some will offer instant access to money with no penalty or loss of interest; others will have restrictions, such as a fixed term or require notice to be given before money can be withdrawn. If a withdrawal is made within a fixed period this may result in a penalty or loss of interest. Cash ISAs are available to UK residents aged 16+.

Stocks and shares ISAs allows individuals to invest in all collective investments regulated by the Financial Services Authority (FSA) such as unit trusts, open-ended investment companies (OEICs) and investment trusts; fixed-interest securities such as corporate and government bonds; and life assurance policies. They can also wrap individual stocks and shares listed on a recognised stock exchange in a self-select ISAs. Stocks and shares ISAs are available to UK residents aged 18+.

During the 2011/12 tax year, an individual can invest up to a maximum £10,680 in an ISA, of which no more than £5,340 can go into a cash ISA.

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Table of contents

  1. Introduction

      • Abbreviations
        • Market definitions
        • Executive Summary

            • The market
              • ISA market expected to increase in value terms…
                • Figure 1: Total ISA market, by value, 2007-17
              • …but volume growth will be harder to achieve
                • Figure 2: Total ISA market, by volume, 2007-17
              • Market factors
                • Inflation rates decreasing
                  • Interest rates negating cash ISA tax relief savings incentive
                    • Stockmarket performance
                      • ISA contributions higher than pension contributions
                        • RDR a threat to the stocks and shares ISA market
                          • Junior ISAs struggling
                            • Companies, products and innovations
                              • LBG has the largest cash ISA market share
                                • Figure 3: Cash ISA provider, June 2012
                              • Scottish Widows leads the way in ISA funds under management
                                • Product innovations
                                  • The consumer
                                    • Some 37% of adults hold an ISA
                                      • Figure 4: Savings and investment product ownership, June 2012
                                    • Some 12% of people have transferred their ISA in the last year
                                      • Figure 5: ISA transfer activity, June 2012
                                    • Interest rates are the key reason for changing ISA provider
                                      • Figure 6: Reasons for switching ISA provider, June 2012
                                    • Saving for financial peace of mind tops the saving motivation list
                                      • Figure 7: Reasons for saving, June 2012
                                    • What we think
                                    • Issues in the Market

                                        • How will the ISA market cope with the end of Baby Boomer contributions?
                                          • How can workplace ISAs work alongside occupational pensions?
                                            • How will the RDR change the stocks and shares ISA market?
                                              • Has the Junior ISA failed?
                                              • Trend Application

                                                • ISAs lead the charge when it comes to a more flexible way of retirement saving
                                                  • Can morality differentiate providers in the homogenous ISA market?
                                                    • Older people lead by example
                                                    • Market Drivers

                                                      • Key points
                                                        • Equity ISA subscriptions overtake pension contributions
                                                          • ISA savings intentions continue to outstrip pension saving intentions
                                                            • Figure 8: ISA intentions vs. pension intentions, Q3/Q4 2002-Q1/Q2 2011
                                                          • Tax wrapper transfers to encourage saving
                                                            • Workplace ISAs attract investors with discounted fund charges
                                                              • Standard Life proposes an extension to auto-enrolment to include workplace ISAs
                                                                • The RDR is set to impact the stocks and shares ISA market
                                                                  • Junior ISAs proving unpopular
                                                                    • Using stocks and shares ISAs for mortgage repayment
                                                                      • The stock market yet to show prolonged recovery and growth
                                                                        • Figure 9: FTSE 100 and FTSE All Share – daily index movements, January 2002-June 2012
                                                                      • Savings ratio highlights cautious consumer mindset
                                                                        • Figure 10: UK savings ratio, 2001-11
                                                                      • Inflation is falling which could boost market in 2013
                                                                        • Figure 11: Average monthly changes in the bank base rate, CPI and RPI – UK, January 2001-May 2012
                                                                      • Branch notice account rates eating into cash ISA tax incentive advantage
                                                                        • Figure 12: Average monthly quoted deposit interest rates at banks and building societies, January 2001-May 2012
                                                                    • SWOT Analysis for ISA Market

                                                                      • Who’s Innovating?

                                                                        • Key points
                                                                          • Halifax and Bank of Scotland launched premium bond-style savings prize draw
                                                                            • Barclays launches cash ISA Thank You prize draw
                                                                              • The Rory McIlroy Two-Year Fixed-rate Major ISA
                                                                                • Nationwide launches an ISA Save to Buy account
                                                                                  • Halifax uses high-paying JISA to entice parents
                                                                                    • Socially responsible ISA best-buy table
                                                                                    • Total ISA Market Size and Forecast

                                                                                      • Key points
                                                                                        • ISA subscriptions falter in the 2011/12 tax year
                                                                                          • Figure 13: Number of ISAs and amounts subscribed, 2004/05-2011/12
                                                                                        • Continued growth in funds held within ISAs…
                                                                                          • Figure 14: Value of funds held in ISAs, by type of investment, 2006/07-2011/12
                                                                                        • …but decline in the value of funds held in securities
                                                                                          • Stocks and shares average subscriptions jumped in 2011/12
                                                                                            • Figure 15: Average amounts subscribed per account, 1999/2000-2011/12
                                                                                          • Total ISA market size will perform well if people use their full allowances
                                                                                            • Figure 16: Total ISA market, by value, 2007-17
                                                                                            • Figure 17: Forecast the total ISA market, by value, 2007-17
                                                                                          • The desire for a financial safety net will see total ISA volumes grow
                                                                                            • Figure 18: Total ISA market, by volume, 2007-17
                                                                                            • Figure 19: Forecast for the total ISA market, by volume, 2007-17
                                                                                          • Forecast methodology
                                                                                          • Cash ISA Market Segmentation and Forecast

                                                                                            • Key points
                                                                                              • Cash ISAs popularity is increasing according to the BBA…
                                                                                                • …but HMRC figures show a loss of ISA appetite in the 2011/12 tax year
                                                                                                  • Figure 20: Number of cash ISAs and amounts subscribed, 1999/2000-2011/12
                                                                                                • Fixed-rate cash ISAs growing in popularity
                                                                                                  • Figure 21: Types of cash ISA, 2009-11
                                                                                                • Cash ISA market value set to see marginal growth
                                                                                                  • Figure 22: Cash ISA market, by value, 2007-17
                                                                                                  • Figure 23: Forecast for the cash ISA market, by value, 2007-17
                                                                                                • Cash ISA market volumes set to remain constant
                                                                                                  • Figure 24: Cash ISA market, by volume, 2007-17
                                                                                                  • Figure 25: Forecast for the cash ISA market, by volume, 2007-17
                                                                                              • Stocks and Shares ISA Market Segmentation and Forecast

                                                                                                • Key points
                                                                                                  • Number of stocks and shares ISAs subscribed drops in 2011/12
                                                                                                    • Figure 26: Number of stocks and shares ISAs and amounts subscribed, segmented by type, 1999/2000-2011/12
                                                                                                  • Net retail ISA sales down on 2009 and 2010 figures
                                                                                                    • Figure 27: Total net retail unit trust/OEIC sales and net retail sales, 2006-11
                                                                                                  • Stocks and shares ISA market value set to climb
                                                                                                    • Figure 28: Stocks and shares ISAs market, by value, 2007-17
                                                                                                    • Figure 29: Forecast for the stocks and shares ISA market, by value, 2007-17
                                                                                                  • Stocks and shares ISA volumes will struggle to see marked increases
                                                                                                    • Figure 30: Stocks and shares ISA market, by volume, 2007-17
                                                                                                    • Figure 31: Forecast for the stocks and shares ISA market, by volume, 2007-17
                                                                                                • Market Share

                                                                                                  • Key points
                                                                                                    • Lloyds Banking Group has almost a third of the cash ISA market…
                                                                                                      • Figure 32: Cash ISA provider, June 2012
                                                                                                    • …but changes are on the horizon
                                                                                                      • Banks hold two thirds of cash ISA balances
                                                                                                        • Figure 33: Cash ISA balances, by provider, April 2012
                                                                                                      • Scottish Widows is the top fund manager, by value of funds under management
                                                                                                        • Figure 34: Top 15 unit trust/OEIC ISA fund managers, by value of funds under management, 2010-12
                                                                                                        • Figure 35: Total ISA funds under management, January/April 2012
                                                                                                    • Companies and Products

                                                                                                      • Barclays
                                                                                                        • Fidelity Worldwide Investments
                                                                                                          • Santander UK
                                                                                                            • Invesco Perpetual
                                                                                                              • Legal & General
                                                                                                                • Lloyds Banking Group
                                                                                                                  • Nationwide
                                                                                                                    • RBS Group
                                                                                                                    • Brand Communication and Promotion

                                                                                                                      • Key points
                                                                                                                        • Cash ISAs dominate adspend
                                                                                                                          • Figure 36: Total advertising expenditure on ISAs, by product category, 2008-12
                                                                                                                        • Adspend follows a seasonal trend
                                                                                                                          • Figure 37: Average monthly adspend on ISAs as a percentage of annual adspend, 2011
                                                                                                                        • Press and TV are the favoured advertising media
                                                                                                                          • Figure 38: Adspend on cash ISAs, by media type, 2010-12
                                                                                                                        • Internet gains importance
                                                                                                                          • Figure 39: Adspend on other investment ISAs, by media type, 2010-12
                                                                                                                        • Lloyds TSB tops ISA adspend
                                                                                                                          • Figure 40: Top 15 ISA advertisers, 2010-12
                                                                                                                      • Channels to Market

                                                                                                                        • Key points
                                                                                                                          • Current account providers have edge in cash ISA market
                                                                                                                            • Figure 41: ISA product holding and cross-sales, July 2012
                                                                                                                            • Figure 42: Channel most used to access savings account, by type of account held, February 2011
                                                                                                                          • Stocks and shares ISAs channels to market
                                                                                                                            • Key channels to market for stocks and shares ISAs
                                                                                                                              • Fund platforms account for majority of sales
                                                                                                                                • Figure 43: Gross retail ISA sales, by sector and distribution channel, October 2011-May 2012
                                                                                                                              • RDR set to impact stocks and shares ISA sales
                                                                                                                                • Figure 44: Number of advised and non-advised ISA sales, 2007-Q1 2011
                                                                                                                            • Savings and Investment Ownership

                                                                                                                              • Key points
                                                                                                                                • Some 37% of people own an ISA
                                                                                                                                  • Figure 45: Savings and investment product ownership, June 2012
                                                                                                                                • ISA ownership notably higher in the over-45s
                                                                                                                                  • Figure 46: Most popular savings and investment product ownership, by age, June 2012
                                                                                                                                • ISA owners have above-average ownership of pensions and other savings accounts
                                                                                                                                  • Figure 47: Savings and investment product ownership, by most popular savings and investment product ownership, June 2012
                                                                                                                                • Stocks and shares ISA owners keen on a broad portfolio of products
                                                                                                                                  • Figure 48: Savings and investment product ownership, by next most popular savings and investment product ownership, June 2012
                                                                                                                              • Cash ISA Providers

                                                                                                                                • Key points
                                                                                                                                  • LBG tops the cash ISA provider charts
                                                                                                                                    • Figure 49: Cash ISA provider, June 2012
                                                                                                                                  • Nationwide is punching above its weight in the cash ISA market
                                                                                                                                    • Nationwide proves popular with fixed term/notice cash ISA holders
                                                                                                                                      • Figure 50: Cash ISA provider, by type of ISA, June 2012
                                                                                                                                  • ISA Transfer Activity

                                                                                                                                    • Key points
                                                                                                                                      • Only 12% of ISA holders switched provider in the last year
                                                                                                                                        • Figure 51: ISA transfer activity, June 2012
                                                                                                                                      • Transferring stocks and shares ISA is a complex process
                                                                                                                                        • Figure 52: ISA transfer activity, by savings and investment product ownership, June 2012
                                                                                                                                      • Fixed-term cash ISA holders are more likely to shop around for a good deal…
                                                                                                                                        • A focus on retention
                                                                                                                                          • …but those that did are motivated by better rates
                                                                                                                                            • Figure 53: Motivators for changing provider, June 2012
                                                                                                                                          • Those who transfer their ISA are more engaged in personal finance generally
                                                                                                                                            • Figure 54: Savings and investment product ownership, by ISA transfer activity, June 2012
                                                                                                                                          • Santander attracts ISA switchers
                                                                                                                                            • Figure 55: Cash ISA provider, by ISA transfer activity, June 2012
                                                                                                                                        • Reasons for Saving and Investment

                                                                                                                                          • Key points
                                                                                                                                            • Desire for financial security drives savings and investing habits
                                                                                                                                              • Figure 56: Reasons for saving, June 2012
                                                                                                                                            • Peace of mind savers generally have above-average savings and investment product ownership
                                                                                                                                              • Figure 57: Savings and investment product ownership, by most popular reasons for saving, June 2012
                                                                                                                                            • Cash ISAs are popular savings vehicles for major purchases
                                                                                                                                              • Figure 58: Savings and investment product ownership, by next most popular reasons for saving, June 2012
                                                                                                                                            • ISA switchers are more likely to look for tax-efficient benefits
                                                                                                                                              • Figure 59: Reasons for saving, by ISA transfer activity, June 2012
                                                                                                                                          • Appendix – Market Size

                                                                                                                                              • Figure 60: Total ISA market, by value, 2012-17
                                                                                                                                              • Figure 61: Cash ISA market, by value, 2012-17
                                                                                                                                              • Figure 62: Stocks and shares ISA market, by value, 2012-17
                                                                                                                                              • Figure 63: Total ISA market, by volume, 2012-17
                                                                                                                                              • Figure 64: Cash ISA market, by volume, 2012-17
                                                                                                                                              • Figure 65: Stocks and shares ISA market, by volume, 2012-17
                                                                                                                                          • Appendix – Savings and Investment Ownership

                                                                                                                                              • Figure 66: Most popular savings and investment product ownership, by demographics, June 2012
                                                                                                                                              • Figure 67: Next most popular savings and investment product ownership, by demographics, June 2012
                                                                                                                                              • Figure 68: Other savings and investment product ownership, by demographics, June 2012
                                                                                                                                              • Figure 69: Savings and investment product ownership, by demographics, June 2012
                                                                                                                                          • Appendix – Cash ISA Provider

                                                                                                                                              • Figure 70: Most popular cash ISA provider, by demographics, June 2012
                                                                                                                                              • Figure 71: Next most popular cash ISA provider, by demographics, June 2012
                                                                                                                                          • Appendix – ISA Transfer Activity

                                                                                                                                              • Figure 72: ISA transfer activity, by demographics, June 2012
                                                                                                                                          • Appendix – Reasons for Saving and Investing

                                                                                                                                              • Figure 73: Most popular reasons for saving, by demographics, June 2012
                                                                                                                                              • Figure 74: Next most popular reasons for saving, by demographics, June 2012
                                                                                                                                              • Figure 75: Reasons for saving, by most popular savings and investment product ownership, June 2012
                                                                                                                                              • Figure 76: Reasons for saving, by next most popular savings and investment product ownership, June 2012
                                                                                                                                              • Figure 77: Reasons for saving, by other savings and investment product ownership, June 2012
                                                                                                                                              • Figure 78: Cash ISA provider, by most popular reasons for saving, June 2012
                                                                                                                                              • Figure 79: Cash ISA provider, by next most popular reasons for saving, June 2012

                                                                                                                                          Companies Covered

                                                                                                                                          • Barclays Bank plc
                                                                                                                                          • Cheltenham & Gloucester plc
                                                                                                                                          • Grupo Santander Central Hispano S.A.
                                                                                                                                          • HBOS plc (Halifax Bank of Scotland)
                                                                                                                                          • Invesco Perpetual
                                                                                                                                          • Kantar Media
                                                                                                                                          • Legal & General Group PLC
                                                                                                                                          • Lloyds Banking Group
                                                                                                                                          • NatWest
                                                                                                                                          • Royal Bank of Scotland Group plc
                                                                                                                                          • Scottish Widows Bank plc

                                                                                                                                          UK ISA Market Research Report - September 2012

                                                                                                                                          £1,995.00 (Excl.Tax)