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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