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ISAs - UK - September 2013

“There is huge potential to increase the take-up of ISAs, given that many more people hold cash and investments than hold one of these tax wrappers. A low central base rate should encourage more savers to look favourably upon cash ISAs, which tend to offer better returns than their non-tax-exempt cousins, while the recent improvement in the stock market could tempt more retail investors back to the equity market, in turn boosting net sales of equity ISAs.”

– Sarah Hitchcock, Senior Analyst – Financial Services

Some questions answered in this report include:

  • What is the size of the ISA gap?
  • How is the wider savings environment impacting on the market?
  • How much customer churn is there?
  • What proportion of savers believe now is a good time to invest in equity?
  • To what extent are people able to save?
  • What proportion of ISA customers use their whole ISA allowance?
  • And what support is there for parity between cash and equity ISAs?

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Table of contents

  1. Introduction

      • Product definitions
        • Abbreviations
        • Executive Summary

            • The market
              • The market should continue to grow, boosted by increases in the annual allowance
                • Figure 1: Forecast of total adult ISA subscriptions, at current prices – fan chart, 2007/08-2017/18
              • Sub-sector performance
                • Value of ISA assets continues to grow
                  • Market factors
                    • Tough savings environment
                      • Measly returns on cash
                        • Low risk tolerance inhibits growth in the equity ISA sector
                          • Recent market developments
                            • Companies, brands and innovation
                              • Lack of incentive to innovate
                                • Leading ISA providers
                                  • Online account management has become the favoured channel for cash ISA holders
                                    • Figure 2: Channel most used to access cash ISA, January 2013
                                  • Fund platforms responsible for the lion’s share of equity ISA sales
                                    • Figure 3: Gross retail ISA OEIC and unit trust sales, by distribution channel, 2012/13
                                  • ISA providers cut back on adspend
                                    • The consumer
                                      • More than three times as many hold a cash ISA as hold an equity ISA
                                        • Figure 4: Ownership of ISAs and other common savings and investments, June 2013
                                      • Saving ability under pressure
                                        • Figure 5: Current level of saving activity, June 2013
                                      • Strong public support for ISA allowance parity
                                        • Figure 6: Agreement with statements about the annual ISA limits and the wider saving and investment environment, June 2013
                                      • Future ISA investment intentions
                                        • What we think
                                        • Issues in the Market

                                            • What is the size of the ISA gap?
                                              • How is the wider savings environment impacting on the market?
                                                • How much customer churn is there?
                                                  • What proportion of savers believe now is a good time to invest in equity?
                                                    • To what extent are people able to save?
                                                      • What proportion of ISA customers use their whole ISA allowance?
                                                        • And what support is there for parity between cash and equity ISAs?
                                                        • Trend Application

                                                          • Trend: Life Hacking
                                                            • Trend: Prove It
                                                              • Mintel’s futures: Old Gold
                                                              • Market Drivers

                                                                • Key points
                                                                  • ISA limits raised, but by less than half the amount in the previous tax year
                                                                    • AIM shares added to the list of eligible investments for ISAs
                                                                      • Government consults on allowing CTF to Junior ISA transfers
                                                                        • Savers continue to lose out from a low base rate and above-target inflation
                                                                          • Figure 7: Average annual changes in the Bank of England base rate, CPI and RPI – UK, 2004-13
                                                                        • Cash ISAs offer better rates of return than their taxable equivalents
                                                                          • Figure 8: Average monthly quoted cash deposit and ISA interest rates, January 2008-June 2013
                                                                        • Cash ISA rates have fallen since the introduction of the FLS
                                                                          • Figure 9: Average monthly quoted cash ISA (variable) rate, January 2011-June 2013
                                                                        • Assessing the tax benefit of ISAs for equity investors
                                                                          • More taxpayers are drawn into the higher tax bracket
                                                                            • Figure 10: Number of basic and higher-rate taxpayers, 2010/11-2013/14
                                                                          • Relatively stable saving ratio
                                                                            • Figure 11: Gross household saving and annual saving ratio, seasonally adjusted and at current prices, 2001-12
                                                                          • Retail deposits grew modestly in 2012
                                                                            • Figure 12: Retail savings balances, by sector, 2003-12
                                                                          • Saving confidence continues to deteriorate
                                                                            • Figure 13: Saving and spending confidence, June 2004-June 2013
                                                                          • Demand for ISAs has fallen over the past year
                                                                            • Figure 14: ISA intentions versus pension intentions, Q3/Q4 2002-Q2/Q3 2013
                                                                          • Improved stockmarket performance…
                                                                            • Figure 15: FTSE 100, FTSE All Share and FTSE AIM All Share – daily index movements, January 2006-July 2013
                                                                          • …and yet demand for investment fund ISAs fell in the previous tax year
                                                                            • Figure 16: Net retail unit trust/OEIC ISA sales, 2007/08-2012/13
                                                                          • Outlook for equity investment
                                                                          • Market SWOT Analysis

                                                                              • Figure 17: ISAs – strengths, weaknesses, opportunities and threats, 2013
                                                                          • Who’s Innovating?

                                                                            • Key points
                                                                              • Reduced product choice and incentive to innovate
                                                                                • This ISA season’s main product launches – get them while you can!
                                                                                  • Summer 2013 launches
                                                                                    • Scottish Friendly adopts a ‘new’ approach in the equity ISA market
                                                                                      • Triodos launches two SRI funds as part of its ethical equity ISA
                                                                                      • Market Size and Forecast

                                                                                        • Key points
                                                                                          • Recent growth in ISA subscriptions driven by hikes in the annual allowance
                                                                                            • Figure 18: Number of ISAs and amounts subscribed, 2005/06-2012/13
                                                                                          • Cash ISAs outnumber stocks and shares ISAs by four to one
                                                                                            • Figure 19: Number of ISAs and amounts subscribed, segmented by component type, 2005/06-2012/13
                                                                                          • Disparity in ISA limits means the average amount subscribed to an equity ISA is much higher than a cash ISA
                                                                                            • Figure 20: Average subscription per account, 2005/06-2012/13
                                                                                          • Introduction of Junior ISAs
                                                                                            • Steady growth trend is forecast to continue
                                                                                              • Figure 21: Forecast of total adult ISA subscriptions, at current prices – fan chart, 2007/08-2017/18
                                                                                              • Figure 22: Forecast of total adult ISA subscriptions, 2012/13-2017/18
                                                                                              • Figure 23: Forecast of new adult ISA business, by component, at current prices, 2012/13-2017/18
                                                                                            • Forecast methodology
                                                                                              • Fan chart explanation
                                                                                              • Value of ISA Funds

                                                                                                • Key points
                                                                                                  • £391 billion held in adult ISAs
                                                                                                    • Figure 24: Value of funds held in adult ISAs, by type of investment, 2008-12
                                                                                                  • OEICs and unit trusts offer an easy way in to the stock market
                                                                                                  • Market Share

                                                                                                    • Key points
                                                                                                      • Halifax is the leading brand in the retail savings account market
                                                                                                        • Figure 25: Ranking of largest providers of cash ISAs and other savings accounts, by proportion of customers, January 2013
                                                                                                      • Building societies punch above their weight in the cash ISA market…
                                                                                                        • Figure 26: Cash ISA balances, by type of provider, June 2013
                                                                                                      • …but are facing mounting pressure from their banking rivals
                                                                                                        • Provider rankings based on overall retail savings balances
                                                                                                          • Figure 27: Providers’ total retail savings balances, shown on a group basis – UK, 2010-12
                                                                                                        • ISA fund managers
                                                                                                          • Two LBG subsidiaries lead in the equity ISA market
                                                                                                            • Figure 28: Top ten unit trust/OEIC ISA providers, by value of funds under management, 2011-13
                                                                                                        • Companies and Products

                                                                                                            • Lloyds Banking Group
                                                                                                              • Description
                                                                                                                • Ranking
                                                                                                                  • Distribution mix
                                                                                                                    • Product range
                                                                                                                      • Figure 29: Lloyds Banking Group cash ISA range, July 2013
                                                                                                                      • Figure 30: Lloyds Banking Group investment ISA product range, July 2013
                                                                                                                    • Recent financial performance
                                                                                                                      • Figure 31: Key annual financial data for Lloyds Banking Group, 2011 and 2012
                                                                                                                    • Brand positioning and strategy
                                                                                                                      • Recent activity
                                                                                                                        • Santander
                                                                                                                          • Description
                                                                                                                            • Ranking
                                                                                                                              • Distribution mix
                                                                                                                                • Product range
                                                                                                                                  • Figure 32: Santander’s ISA product range, July 2013
                                                                                                                                • Recent financial performance
                                                                                                                                  • Figure 33: Key annual financial data for Santander UK, 2011 and 2012
                                                                                                                                • Brand positioning and strategy
                                                                                                                                  • Recent activity
                                                                                                                                    • Nationwide
                                                                                                                                      • Description
                                                                                                                                        • Ranking
                                                                                                                                          • Distribution mix
                                                                                                                                            • Product range
                                                                                                                                              • Figure 34: Nationwide’s ISA product range, July 2013
                                                                                                                                            • Recent financial performance
                                                                                                                                              • Figure 35: Key financial data for Nationwide Building Society, 2012 and 2013
                                                                                                                                            • Brand positioning and strategy
                                                                                                                                              • Recent activity
                                                                                                                                                • Fidelity
                                                                                                                                                  • Description
                                                                                                                                                    • Ranking
                                                                                                                                                      • Distribution mix
                                                                                                                                                        • Product range
                                                                                                                                                          • Figure 36: Fidelity’s ISA product range, July 2013
                                                                                                                                                        • Recent financial performance
                                                                                                                                                          • Figure 37: Key financial data for FIL Investment Services (UK), 2011 and 2012
                                                                                                                                                        • Brand positioning and strategy
                                                                                                                                                          • Recent activity
                                                                                                                                                          • Brand Communication and Promotion

                                                                                                                                                            • Key points
                                                                                                                                                              • Sharp fall in ISA adspend
                                                                                                                                                                • Figure 38: Total advertising expenditure on ISAs, by component type, 2009-13
                                                                                                                                                              • Significant seasonal variation in ISA adspend levels
                                                                                                                                                                • Figure 39: Average monthly adspend on ISAs as a percentage of annual adspend, by component type, 2012
                                                                                                                                                              • Traditional bank brands steal a march on their mutual and former-mutual rivals
                                                                                                                                                                • Figure 40: Top ten advertisers of cash ISAs, 2011-13
                                                                                                                                                              • Fidelity again tops the equity ISA advertiser rankings
                                                                                                                                                                • Figure 41: Top ten advertisers of stocks and shares ISAs, 2011-13
                                                                                                                                                              • Cash ISAs are conducive to television advertising
                                                                                                                                                                • Figure 42: Proportional distribution of ISA adspend, by media channel and component type, 2013
                                                                                                                                                            • Channels to Market

                                                                                                                                                              • Key points
                                                                                                                                                                • Cash ISAs are predominantly sold direct to consumers
                                                                                                                                                                  • Figure 43: Channel most used to access savings account, by type of account held, January 2013
                                                                                                                                                                • Intermediaries play a dominant role in the sale of equity ISAs
                                                                                                                                                                    • Figure 44: Gross retail ISA OEIC and unit trust sales, by distribution channel, 2012/13
                                                                                                                                                                    • Figure 45: Net retail ISA OEIC and unit trust sales, by distribution channel, 2007/08-2012/13
                                                                                                                                                                • Ownership of ISAs, Other Savings and Investments

                                                                                                                                                                  • Key points
                                                                                                                                                                    • Survey background
                                                                                                                                                                      • Relatively stable ISA penetration
                                                                                                                                                                        • Figure 46: Ownership of ISAs and other savings and investments, June 2012 and June 2013
                                                                                                                                                                      • Measuring the ISA gap
                                                                                                                                                                        • Figure 47: Ownership of ISAs and other savings and investments – cross-analysis, June 2013
                                                                                                                                                                    • Saving Activity and Other Financial Priorities

                                                                                                                                                                      • Key points
                                                                                                                                                                        • Many people are saving less now than a year ago
                                                                                                                                                                          • Figure 48: Agreement with statements about saving activity and other financial priorities, June 2013
                                                                                                                                                                        • ISA subscribers are generally in a stronger financial position
                                                                                                                                                                          • Figure 49: Agreement with statements about saving activity and other financial priorities, by ownership of ISAs, June 2013
                                                                                                                                                                      • ISA Limits and the Saving Environment

                                                                                                                                                                        • Key points
                                                                                                                                                                          • Strong public support for ISA limit parity
                                                                                                                                                                            • Figure 50: Agreement with statements about the annual ISA limits and the saving and investment environment, June 2013
                                                                                                                                                                          • Equity ISA holders are more bullish
                                                                                                                                                                            • Figure 51: Agreement with statements about the annual ISA limits and the saving and investment environment, by ISA holders, June 2013
                                                                                                                                                                          • Low interest rates acting as a disincentive to save
                                                                                                                                                                            • Figure 52: Agreement with statements about the annual ISA limits and the saving and investment environment, by saving activity, June 2013
                                                                                                                                                                        • ISA Contribution and Transfer Intentions

                                                                                                                                                                          • Key points
                                                                                                                                                                            • A much higher proportion of cash ISA holders intend to add to their savings than make a withdrawal
                                                                                                                                                                              • Figure 53: ISA contribution and transfer intentions over the next 12 months, by type of ISA held, June 2013
                                                                                                                                                                            • One in five cash ISA holders are planning a transfer
                                                                                                                                                                              • Equity ISA holders are less active than their cash counterparts
                                                                                                                                                                                • Those who are struggling to save are likely to make a withdrawal
                                                                                                                                                                                  • Figure 54: ISA contribution and transfer intentions over the next 12 months, by saving activity, June 2013
                                                                                                                                                                                • Attitudes influence investment intentions
                                                                                                                                                                                  • Figure 55: ISA contribution and transfer intentions over the next 12 months, by agreement with statements about the saving/investment environment, June 2013
                                                                                                                                                                              • Appendix – Market Size and Forecast

                                                                                                                                                                                • Total market forecast – best- and worst-case scenarios
                                                                                                                                                                                  • Figure 56: Value of new adult ISA subscriptions – best- and worst-case scenarios, at current prices, 2012/13-2017/18
                                                                                                                                                                                • Market forecast by sector
                                                                                                                                                                                  • Figure 57: Value and volume of new adult ISA subscriptions, by component, at current prices, 2007/08-2017/18
                                                                                                                                                                                • Cash component forecast
                                                                                                                                                                                  • Figure 58: Forecast of cash ISA subscriptions, at current prices – fan chart, 2007/08-2017/18
                                                                                                                                                                                  • Figure 59: Forecast of cash ISA subscriptions, 2012/13-2017/18
                                                                                                                                                                                  • Figure 60: Forecast of cash ISA subscriptions – best- and worst-case scenarios, at current prices, 2012/13-2017/18
                                                                                                                                                                                • Stocks and shares forecast
                                                                                                                                                                                  • Figure 61: Forecast of stocks and shares ISA subscriptions, at current prices – fan chart, 2007/08-2017/18
                                                                                                                                                                                  • Figure 62: Forecast of stocks and shares ISA subscriptions, 2012/13-2017/18
                                                                                                                                                                                  • Figure 63: Forecast of stocks and shares ISA subscriptions – best- and worst-case scenarios, at current prices, 2012/13-2017/18
                                                                                                                                                                                • Forecast methodology
                                                                                                                                                                                  • Fan chart explanation
                                                                                                                                                                                  • Appendix – Market Background

                                                                                                                                                                                    • Key milestones in the ISA story
                                                                                                                                                                                      • Figure 64: Key changes to the ISA scheme, 2004-13
                                                                                                                                                                                  • Appendix – Ownership of ISAs, Other Savings and Investments

                                                                                                                                                                                        • Figure 65: Ownership of savings and investments, by demographics, June 2013
                                                                                                                                                                                        • Figure 66: Ownership of ISAs, by product type and demographics, June 2013
                                                                                                                                                                                    • Appendix – Saving Activity and Other Financial Priorities

                                                                                                                                                                                          • Figure 67: Most popular agreement with statements about saving activity and other financial priorities, by demographics, June 2013
                                                                                                                                                                                      • Appendix – ISA Limits and the Saving Environment

                                                                                                                                                                                          • Figure 68: Agreement with statement ‘It’s hardly worth saving at the moment because interest rates are so low’, by demographics, June 2013
                                                                                                                                                                                          • Figure 69: Agreement with statement ‘It’s a good time to invest in the stock market’, by demographics, June 2013
                                                                                                                                                                                          • Figure 70: Agreement with statement ‘People should be able to save the full ISA limit of £11,520 in a cash ISA as they can in a stocks and shares ISA’, by demographics, June 2013
                                                                                                                                                                                      • Appendix – ISA Contribution and Transfer Intentions

                                                                                                                                                                                            • Figure 71: ISA contributors and transfer targets over the next 12 months, by demographics, June 2013
                                                                                                                                                                                            • Figure 72: Cash ISA contribution and transfer intentions over the next 12 months, by demographics, June 2013
                                                                                                                                                                                            • Figure 73: Other ISA contribution and transfer intentions over the next 12 months, by demographics, June 2013

                                                                                                                                                                                        Companies Covered

                                                                                                                                                                                        • Alliance & Leicester
                                                                                                                                                                                        • Bank of England
                                                                                                                                                                                        • Bradford & Bingley plc
                                                                                                                                                                                        • Brewin Dolphin Holdings PLC
                                                                                                                                                                                        • Cheltenham & Gloucester plc
                                                                                                                                                                                        • Dunfermline Building Society
                                                                                                                                                                                        • Fidelity Investment Services Limited
                                                                                                                                                                                        • Grupo Santander UK
                                                                                                                                                                                        • HBOS plc (Halifax Bank of Scotland)
                                                                                                                                                                                        • Invesco Perpetual
                                                                                                                                                                                        • J. Sainsbury
                                                                                                                                                                                        • Lloyds Banking Group
                                                                                                                                                                                        • London Stock Exchange plc
                                                                                                                                                                                        • Nationwide Building Society
                                                                                                                                                                                        • Royal Bank of Scotland Group plc
                                                                                                                                                                                        • Scottish Widows Bank plc

                                                                                                                                                                                        ISAs - UK - September 2013

                                                                                                                                                                                        £1,995.00 (Excl.Tax)