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ISAs - UK - September 2014

“ISA providers should embrace the new ISA reforms and ensure that they can offer consumers the maximum amount of flexibility that the new ISA rules can afford. The traditional line between cash and stocks and shares ISA providers is now blurred. Cash ISAs should begin looking at offering consumers a simple range of investment options, and stocks and shares providers need to consider the rates of interest that they pay on cash.”
- Alexander Hiscox, Senior Analyst – Financial Services
This report looks at the following issues:

  • NISA flexibility will make consumers more willing to dabble in stocks and shares
  • ISAs will complement, not compete with pensions, despite pension reforms
  • Few consumers will be able to take full advantage of the new ISA allowance

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Table of contents

  1. Introduction

      • Product definitions
        • Abbreviations
        • Executive Summary

            • The market
              • The ISA market is expected to grow over the next five years, aided by the 2014 Budget changes
                • Figure 1: Forecast of total adult ISA subscriptions, at current prices – fan chart, 2008/09-2018/19
              • OEICs and Unit Trusts grow in popularity
                • Market factors
                  • The 2014 Budget will shake up the savings, investments and pensions industry
                    • Falling savings ratio has hit cash savings
                      • The FLS and BoE base rate continue to keep ISA interest rates at rock bottom
                        • Increasing numbers of ISAs are sold directly online
                          • Other recent market developments
                            • Companies, brands and innovation
                              • The largest banks dominate the cash ISA market
                                • Figure 2: Providers’ market share based on total retail savings balances, shown on a group basis, UK, 2013
                              • St.James’s Place becomes the largest unit trust/OEIC ISA provider
                                • Figure 3: Top ten unit trust/OEIC ISA providers, by value of funds under management, May 2014
                              • Adspend for cash ISAs continues to decrease as adspend on stocks and shares ISAs increases
                                • The consumer
                                  • A quarter of adults have an instant access cash ISA
                                    • Figure 4: Ownership of savings and investment products, June 2014
                                  • 31% simply opted for the ISA that their current account provider was offering
                                    • Figure 5: Reasons to choose an ISA Provider, June 2014
                                  • Around a quarter of consumers use their ISA for unexpected events
                                    • Figure 6: Uses for ISA savings or investments, June 2014
                                  • Half of all ISA holders are happy with their existing provider
                                    • Figure 7: Attitudes towards ISAs, June 2014
                                  • Instant access is the key attraction, even at the cost of interest payments
                                    • Figure 8: Preferences of types of cash ISA accounts, June 2014
                                  • What we think
                                  • Issues and Insights

                                      • NISA flexibility will make consumers more willing to dabble in stocks and shares
                                        • The facts
                                          • The implications
                                            • ISAs will complement, not compete with pensions, despite pension reforms
                                              • The facts
                                                • The implications
                                                  • Few consumers will be able to take full advantage of the new ISA allowance
                                                    • The facts
                                                      • The implications
                                                      • Trend Application

                                                        • Giving consumers the flexibility to meet unexpected costs and save for the future
                                                          • Nudging consumers towards better savings habits
                                                            • Mintel futures: Generation Next
                                                            • Market Drivers

                                                              • Key points
                                                                • 2014 Budget changes
                                                                  • ISA changes
                                                                    • Changes to annuities
                                                                      • Savings ratio is falling as consumer confidence picks up
                                                                        • Figure 9: Annual savings ratio, Q1 2008 – Q1 2014
                                                                      • Retail deposits continue to grow modestly to mid-2014
                                                                        • Figure 10: Retail savings balances, by sector, 2005-14
                                                                      • FLS will contribute towards low rates for another two-and-a-half years
                                                                        • Child Trust Funds will be allowed to be transferred to Junior ISAs
                                                                          • The Cash Savings Market Study investigates competition in the cash ISA market
                                                                            • Low base rate and inflation continue to hurt savers
                                                                              • Figure 11: Bank of England base rate, CPI and RPI – UK, January 2006- June 2014
                                                                            • Cash ISA rates continue to decrease and remain lower than inflation
                                                                              • Figure 12: Average monthly quoted cash ISA variable rate and fixed rate, January 2011-May 2014
                                                                            • Global stock markets recover to pre-recession levels
                                                                              • Figure 13: Performance of FTSE 100, Nikkei 225 and S&P 100, January 2003-August 2014
                                                                          • Who’s Innovating?

                                                                            • Key points
                                                                              • HSBC launches loyalty range of cash ISAs and ends teaser rates
                                                                                • Nationwide launches simple investment range
                                                                                  • Sun Life Direct to launch £10 per month ISA
                                                                                    • James Hay launch modular ISA
                                                                                    • Market Size and Forecast

                                                                                      • Key points
                                                                                        • The number of ISAs subscribed to decreased in 2013/14
                                                                                          • Figure 14: Number of ISAs and amounts subscribed, 2005/06-2013/14
                                                                                        • Low cash interest rates increase the appeal of equities, at the expense of cash savings
                                                                                          • Figure 15: Number of ISAs and amounts subscribed, segmented by component type, 2005/06-2013/14
                                                                                        • The new £15,000 annual allowance will boost average subscription amounts
                                                                                          • Figure 16: Average subscription per account, 2008/09-2013/14
                                                                                        • OEICs and Unit Trusts grow in popularity
                                                                                          • Figure 17: Value of funds held in adult ISAs, by type of investment, 2012-14
                                                                                        • The ISA market is expected to grow, aided by the 2014 Budget changes
                                                                                          • Figure 18: Forecast of total adult ISA subscriptions, at current prices – fan chart, 2008/09-2018/19
                                                                                          • Figure 19: Forecast of total adult ISA subscriptions, 2013/14-2018/19
                                                                                          • Figure 20: Forecast of new adult ISA business, by component at current prices, 2013/14-2018/19
                                                                                        • Forecast methodology
                                                                                          • Fan chart explanation
                                                                                          • Market Share

                                                                                            • Key points
                                                                                              • The largest banks dominate the cash ISA market
                                                                                                • Figure 21: Ranking of the largest providers of cash ISAs and other savings accounts, by proportion of customers, January 2014
                                                                                              • Lloyds Banking Group dominated retail customer deposit balances in 2013
                                                                                                • Figure 22: Providers’ total retail savings balances, shown on a group basis – UK, 2011-13
                                                                                              • St James’s Place becomes the largest unit trust/OEIC ISA provider
                                                                                                • Figure 23: Top ten unit trust/OEIC ISA providers, by value of funds under management, 2012-14
                                                                                              • Unit trust and OEIC ISA sales increased in the last tax year
                                                                                                • Figure 24: Net retail unit trust/OEIC ISA sales, 2007/08-2013/14
                                                                                            • Companies and Products

                                                                                              • Lloyds Banking Group
                                                                                                  • Figure 25: Lloyds Banking Group cash ISA range, July 2014
                                                                                                  • Figure 26: Key annual financial data for Lloyds Banking Group, 2012 and 2013
                                                                                                • Santander
                                                                                                    • Figure 27: Santander’s ISA product range, July 2014
                                                                                                    • Figure 28: Key annual financial data for Santander UK, 2011-13
                                                                                                  • Nationwide
                                                                                                      • Figure 29: Nationwide’s cash ISA product range, July 2014
                                                                                                      • Figure 30: Key financial data for Nationwide Building Society, 2013 and 2014
                                                                                                    • St. James’s Place (SJP)
                                                                                                        • Figure 31: Key financial data for St.James’s Place plc
                                                                                                    • Brand Communication and Promotion

                                                                                                      • Key points
                                                                                                        • Adspend on cash ISAs continues to fall
                                                                                                          • Figure 32: Total advertising expenditure on ISAs, by component type, 2009/10-2013/14
                                                                                                        • The Post Office became the largest ISA advertiser in 2014
                                                                                                          • Figure 33: Top ten advertisers of cash ISAs, 2012-14
                                                                                                        • Scottish Friendly became the largest stocks and shares ISA advertiser in 2014
                                                                                                          • Figure 34: Top ten advertisers of stocks and shares ISAs, 2012-14
                                                                                                      • Channels to Market

                                                                                                        • Key points
                                                                                                          • Online channels are increasingly popular in researching, applying for and managing cash ISAs
                                                                                                            • Figure 35: Preferences for retail banking channels, by ownership of different types of savings accounts, January 2014
                                                                                                          • Fund platforms accounted for the majority of fund sales in ISAs
                                                                                                            • Figure 36: Gross retail ISA OEIC and unit trust sales, by distribution channel, 2013/14
                                                                                                        • Ownership of ISAs

                                                                                                          • Survey background
                                                                                                            • Key points
                                                                                                              • Having instant access appealing to consumers
                                                                                                                • Figure 37: Ownership of ISAs and other savings and investment products, June 2014
                                                                                                              • Savings accounts are easier for consumers to understand than ISAs
                                                                                                                • Stocks and shares ISAs are the most popular way to hold investments
                                                                                                                  • A large proportion of consumers have no savings or investments
                                                                                                                    • An older, more affluent customer base
                                                                                                                      • Figure 38: Ownership of ISAs, by demographics, June 2014
                                                                                                                  • Reasons to Choose an ISA Provider

                                                                                                                    • Key points
                                                                                                                      • A third of ISA holders took out an ISA from their bank account provider
                                                                                                                        • Figure 39: Reasons to Choose an ISA Provider, June 2014
                                                                                                                      • Stocks and shares ISA holders are less likely to use their current account provider
                                                                                                                        • Recommendations not decisive in helping consumers choose their ISA provider
                                                                                                                          • Loyalty rates succeed in encouraging 17% of consumers to choose their ISA provider
                                                                                                                            • Figure 40: Reasons to choose an ISA provider, by reasons to choose an ISA provider, June 2014
                                                                                                                          • Four out of ten ISA holders chase the best interest rate
                                                                                                                            • ISA holders also look for a well-known brand and good customer service
                                                                                                                            • Uses for ISA Savings or Investments

                                                                                                                              • Key points
                                                                                                                                • The most popular use for ISA savings/investments is to fund retirement
                                                                                                                                  • Figure 41: Uses for ISA savings or investments, June 2014
                                                                                                                                • Around a quarter use their ISA to pay for emergencies or unexpected events
                                                                                                                                  • A fifth of ISA holders use their account to grow their wealth
                                                                                                                                    • Unstructured saving can prevent consumers from building up their savings
                                                                                                                                    • Attitudes towards ISAs

                                                                                                                                      • Key points
                                                                                                                                        • Over half of ISA holders are happy with their ISA
                                                                                                                                          • Figure 42: Attitudes towards ISAs, June 2014
                                                                                                                                        • Twice as many ISA holders contribute ad hoc as contribute regularly
                                                                                                                                          • Figure 43: Attitudes towards ISAs, by ownership of ISAs, June 2014
                                                                                                                                        • Changes to the ISA allowance will only benefit wealthier ISA holders
                                                                                                                                          • Only 38% of cash ISA holders are investing to take advantage of the tax benefits
                                                                                                                                          • Preferences for Types of ISA Savings Accounts

                                                                                                                                            • Key points
                                                                                                                                              • Low interest easy access ISAs are the most popular among consumers
                                                                                                                                                • Figure 44: Cash ISA account preferences
                                                                                                                                              • 17% of consumers are prepared to lock their money away for 5 years
                                                                                                                                                • A fifth of consumers don’t know what they want
                                                                                                                                                  • Figure 45: Preferences of types of ISA savings accounts, by demographics, June 2014
                                                                                                                                              • Appendix – Market Size and Forecast

                                                                                                                                                • Total market forecast – best- and worst-case scenarios
                                                                                                                                                  • Figure 46: Value of new adult ISA subscriptions – best- and worst-case scenarios, at current prices, 2013/14-2018/19
                                                                                                                                                • Market forecast by sector
                                                                                                                                                  • Figure 47: Value and volume of new adult ISA subscriptions, by component, at current prices, 2008/09-2018/19
                                                                                                                                                • Cash ISA forecast
                                                                                                                                                  • Figure 48: Forecast of cash ISA subscriptions, at current prices – fan chart, 2008/09-2018/19
                                                                                                                                                  • Figure 49: Forecast of cash ISA subscriptions, 2013/14-2018/19
                                                                                                                                                  • Figure 50: Forecast of cash ISA subscriptions – best- and worst-case scenarios, at current prices, 2013/14-2018/19
                                                                                                                                                • Stocks and shares forecast
                                                                                                                                                  • Figure 51: Forecast of stocks and shares ISA subscriptions, at current prices – fan chart, 2008/09-2018/19
                                                                                                                                                  • Figure 52: Forecast of stocks and shares ISA subscriptions, 2013/14-2018/19
                                                                                                                                                  • Figure 53: Forecast of stocks and shares ISA subscriptions – best- and worst-case scenarios, at current prices, 2013/14-2018/19
                                                                                                                                                • Forecast methodology
                                                                                                                                                  • Fan chart explanation
                                                                                                                                                  • Appendix – Ownership of ISAs

                                                                                                                                                      • Figure 54: Ownership of ISAs, by demographics, June 2014
                                                                                                                                                      • Figure 55: Ownership of ISAs, by demographics, June 2014
                                                                                                                                                      • Figure 56: Ownership of ISAs, by demographics, June 2014
                                                                                                                                                  • Appendix – Reasons to Choose an ISA Provider

                                                                                                                                                      • Figure 57: Reasons to choose an ISA provider, by demographics, June 2014
                                                                                                                                                      • Figure 58: Reasons to choose an ISA provider, by demographics, June 2014
                                                                                                                                                      • Figure 59: Reasons to choose an ISA provider, by demographics, June 2014
                                                                                                                                                  • Appendix – Uses for ISA Savings or Investments

                                                                                                                                                      • Figure 60: Uses for ISA savings or investments, by demographics, June 2014
                                                                                                                                                      • Figure 61: Uses for ISA savings or investments, by demographics, June 2014
                                                                                                                                                  • Appendix – Attitudes towards ISAs

                                                                                                                                                      • Figure 62: Attitudes towards ISAs, by demographics, June 2014
                                                                                                                                                      • Figure 63: Attitudes towards ISAs, by demographics, June 2014
                                                                                                                                                      • Figure 64: Attitudes towards ISAs, by demographics, June 2014
                                                                                                                                                  • Appendix – Preferences for Types of ISA Savings Accounts

                                                                                                                                                      • Figure 65: Preferences for types of ISA savings accounts, by demographics, June 2014

                                                                                                                                                  Companies Covered

                                                                                                                                                  • Aberdeen Asset Management PLC
                                                                                                                                                  • Bank of England
                                                                                                                                                  • Barclays Bank plc
                                                                                                                                                  • Cheshire Building Society
                                                                                                                                                  • Dunfermline Building Society
                                                                                                                                                  • Grupo Santander Central Hispano S.A.
                                                                                                                                                  • HBOS plc (Halifax Bank of Scotland)
                                                                                                                                                  • Investment Management Association
                                                                                                                                                  • Legal & General Assurance Society Limited
                                                                                                                                                  • Lloyds Banking Group
                                                                                                                                                  • Nationwide Building Society
                                                                                                                                                  • Portman Building Society
                                                                                                                                                  • Scottish Widows Investment Partnership Ltd
                                                                                                                                                  • St James' Place Plc

                                                                                                                                                  ISAs - UK - September 2014

                                                                                                                                                  £1,995.00 (Excl.Tax)