Abstract
Despite fears over the impact of the economic downturn, the ISA market experienced strong growth in 2007/08. Indeed, both value and volume of new ISA sales increased by around 8% in 2007/08, from the levels recorded in the previous tax year. The market has also recently been boosted by changes to the ISA structure, which came into effect in April 2008. These amendments include making ISAs a permanent feature of the savings and investment landscape, as well creating a more flexible and less complex market, in turn addressing a lot of previous criticism.
Therefore, looking forward the general picture for the ISA market seems quite positive. However, closer analysis does reveal some ongoing issues and challenges. Mintel' s consumer research reveals a worryingly low level of awareness about the recent changes to the ISA structure. At the same time, cash ISAs continue to dominate the market, with little evidence of any real increase in appetite for stocks and shares ISAs. While the current economic downturn will do little for investor confidence, evidence is also emerging which suggests that increased pressure on household budgets is reducing the overall capacity to save.
This report examines the key issues in the ISA market in light of these issues and challenges. It considers the current economic climate and specific developments within the ISA market. Data provided by HMRC is used to establish the size of the market, while Mintel' s consumer research and IMA data enable analysis of market share. The report also identifies key trends relating to distribution, brand perception and innovation. Mintel' s consumer research provides an insight into product ownership, and attitudes and behaviours towards ISA products.
Key report topics:
- Cash ISA ownership is increasing strongly, although it remains skewed towards older consumers and those in higher income groups.
- In contrast, there has been only a slight increase in ownership of stocks and shares ISAs, with sales acutely linked to stockmarket performance and overall economic confidence.
- However, sales of ISAs in both value and volume terms increased markedly in 2007/08, although the current uncertain economic climate does not bode well for sales in 2008/09.
- Changes to the ISA regime have been heralded as positive for the market, particularly as they will reduce the complexity and improve the flexibility of ISA products.
- However, awareness of these changes is low and many in the industry do not feel they go far enough in making ISA products attractive to consumers.
- The distribution of cash ISA products is still centred around branch-based accounts, although online channels are growing in influence.
- In the equity ISA market, the development of fund supermarkets has revolutionised distribution, and looks set to become increasingly dominant.
Table of Contents
- Issues in the Market
- Key issues
- Product background
- Abbreviations
- Market in Brief
- ISA sales witness strong growth in 2007/08
- Figure 1: Number of ISA accounts subscribed to, by cash and stocks and shares components, 1999/2000 to 2007/08
- Cash ISA subscriptions increase by 11%
- Figure 2: Amounts subscribed to ISA accounts, by cash and stocks and shares components, 1999-2000 to 2007/08
- New ISA regulations address issues of complexity
- Economic slowdown provides a challenge for the ISA market
- Falling consumer confidence reduces intentions to save
- HBOS and Nationwide dominate cash ISA market share...
- ... while Fidelity tops list of ISA fund managers
- Figure 3: Market share for ISA fund managers, by value of funds under management for IMA members, May 2008
- Fund platforms are now dominant channel
- Key consumer findings
- Figure 4: Ownership of ISAs and other savings and investment products, April 2008
- Consumer awareness continues to pose challenge
- A third of ISA savers are looking to the long-term
- Figure 5: Overview of ISA holder behaviour, April 2008
- Internal Market Environment
- Key points
- New simplified ISA regime ushered in
- Figure 6: Illustration of annual investment limits, to 5th April 2008
- Figure 7: Illustration of annual investment limits, from 5th April 2008
- ISA changes at a glance
- Implications of new regulations
- Credit squeeze could lower demand for ISAs...
- Figure 8: Intended cash based-activities Q3/Q4 2002-Q4/Q1 2008*
- ...but savings rates boosted by demand for deposits
- Investor sentiment remains weak
- Figure 9: Intended purchase and sales of equities, Q3/Q4 2002-Q4/Q1 2008
- Fallout from Northern Rock
- Figure 10: Agreement with statements relating to Northern Rock, by gender, January 2008
- Covered to £50,000?
- Other regulatory changes/updates
- Retail distribution review
- National money guidance service
- Savings Gateway scheme
- Broader Market Environment
- Key points
- Economic slowdown
- Consumer confidence weakens
- Bank rate cuts reduce appeal of savings products...
- Figure 11: Bank of England base rate and RPI, November 1990-March 2008
- ... while inflation continues to erode savings
- Pressure on household finances
- Increased volatility will weaken demand for equity investments
- Figure 12: FTSE 100 and FTSE all-share indices -- daily movements, January 2000-April 2008
- Equity ISAs -- peaks and troughs
- Demographic factors are positive for future of ISA market
- Figure 13: Number of basic and higher-rate taxpayers, 1998/99-2008/09
- 7% growth in over-45s expected by 2013
- Competitive Context
- Key points
- ISAs as wrappers
- ISAs within the wider savings and investment market
- Figure 14: Ownership of ISA and other savings and investment products, April 2008
- The extent of the ISA gap
- ISAs and pensions
- The IHT challenge
- Is property losing its appeal?
- Household debt continues to rise
- Strengths and Weaknesses in the Market
- Figure 15: Strengths and weaknesses in the ISA market
- Strengths in the ISA market
- Weaknesses in the ISA market
- Market Size and Forecast
- Key points
- ISA sales soar in 2007/08
- Figure 16: Number of ISA accounts subscribed to, by cash and stocks and shares components,
- ...but stocks and shares ISAs more liable to fluctuations
- Stockmarket uncertainties hit stocks and shares ISA sales
- Cash subscriptions increase by 11% in last tax year
- Figure 17: Amounts subscribed to ISA accounts, by cash and stocks and shares components, 1999/2000 to 2007/08
- Equity-based ISA subscriptions have increased in recent years...
- Figure 18: Average subscriptions for mini cash ISA, mini stocks and shares ISAs and maxi ISAs,
- ... but cash ISA subscriptions remain relatively flat
- Forecast
- Figure 19: Cash ISA, new business value, at current prices, forecast, 2008-13
- ... but stocks and shares ISAs to decline in short-term
- Figure 20: Stocks and shares ISA, new business value, at current prices, forecast, 2008-13
- Factors used in the forecast
- Business in Force
- Key points
- More than £200 billion held in ISAs
- Figure 21: Value of funds held in each ISA component as of 5th April, 2001-07
- OEICs make up 45% of stocks and shares ISA market
- Figure 22: Comparison of proportion of funds held in stocks and shares ISA component, 2001 & 2007
- Cautious managed funds most popular in net terms
- PEPs to increase the size of the ISA market by £79 billion
- Figure 23: Market value of funds in PEPs as at 5th April, by breakdown of qualifying investment, 2002-07
- Market Share
- Key points
- Halifax and Nationwide lead cash ISA rankings
- Figure 24: Provider share of mini cash ISA customer base, April 2008
- Attributes of leading providers
- Building societies punch above weight in ISA market
- Figure 25: Share of all retail balances, by type of provider, January 2008
- Figure 26: Share of cash ISA balances, by type of provider, January 2008
- Leading ISA fund managers
- Fidelity and Legal & General lead the way
- Figure 27: Market share for ISA fund managers, by value of funds under management for IMA members, May 2008
- Fidelity exceeds £7.5 billion in ISA funds
- Figure 28: Top 15 ISA fund managers, by value of funds under management, 2005-08
- Companies and Products
- Almost three out of ten cash ISA products are fixed rate
- Figure 29: Overview of types of cash ISA products available, June 2008
- Building societies tend to offer better rates
- Figure 30: Average month end cash ISA interest rates for banks and building societies, Apr 99-Dec 07
- Risk is key factor for equity ISAs
- Company profiles -- Cash ISA providers
- Halifax/HBOS Group
- Nationwide
- Leading fund managers
- Fidelity International
- Legal and General
- Fund supermarkets -- Key players
- Brand Communication and Promotion
- Key points
- New regulations push up ISA adspend by 20%
- Figure 43: Total advertising expenditure on ISAs and PEPs, by product category, 2003/04-2007/08
- ISA season accounts for almost 70% of annual adspend
- Figure 44: Analysis of monthly ISA expenditure, 2007/08
- Advertisers embrace a variety of media
- Figure 45: Proportion distribution adspend on ISAs and PEPs, by main media types, 2003/04-2007/08
- Retail banks top ISA adspend in 2007/08
- Figure 46: Top 20 ISA & PEP advertisers 2005/06-2007-08
- Channels to Market
- Key points
- Cash ISAs sold by direct channels
- Only a fifth of cash ISA products can be operated online
- Figure 47: Channels available for cash ISA transactions, June 2008
- Some 79% of stocks and shares ISA sales receive advice
- IMA Unit Trust/OEIC ISA distribution data
- Fund supermarkets alter landscape of ISA distribution
- Figure 48: Gross retail sales of unit trust and OEIC ISAs, by distribution channel, 2000-07
- Fund supermarkets now dominate market
- Figure 49: Proportional of gross retail unit trust and OEIC ISA sales, by channel, 2000-07
- The Consumer -- ISA Product Ownership
- Key points
- Survey background
- Almost a third of adults hold a cash ISA
- Figure 50: Ownership of ISA and other savings and investment products, April 2008
- UK savers remain risk averse
- The ISA gap -- only four in ten savers have a cash ISA
- Figure 51: Cross-analysis of product ownership, April 2008
- 44% of people with two savings products have a cash ISA
- Figure 52: repertoire analysis of products owned, May 2008
- Over-44s represent key group for ISA providers
- Figure 53: Ownership of ISAs and other savings/investment products, by gender, age, lifestage and marital status, April 2008
- Over-35s are looking to the long-term future
- Half of all ABs hold a cash ISA
- Figure 54: Ownership of ISAs and other savings/investment products, by socio-economic group, gross annual household income, working status, household tenure, April 2008
- Considerable regional variation in ISA ownership
- Figure 55: Ownership of ISAs and other savings/investment products, by TV region, technology users, newspaper readership, supermarket used, April 2008
- Almost a quarter of ISA holders are over 65
- Figure 56: Profile of ISA and other savings and investment holders, by gender, age, socio-economic and TV region, April 2008
- The Consumer -- Cash ISA Providers
- Key points
- Two-thirds of cash ISAs are held with banks
- Figure 57: Cash ISA provider, by type of institution, April 2008
- More affluent ISA savers are attracted to building societies
- Figure 58: Typical demographic profiles of bank and building society ISA customers, April 2008
- Region influences choice of institution
- Building society ISA holders have more diversified products
- Figure 59: Type of institution where cash ISA is held, by savings and investment products held, April 2008
- Appendix -- Broader Market Environment
- Figure 74: Size of the UK population, by age group, 1993-2013
- Figure 75: Distribution of the UK population aged 15+ by socio-economic group, 1993-2013
- Appendix -- The Consumer -- Product Providers
- Figure 76: Type of institution where cash ISA is held, by gender, age, lifestage and marital status, April 2008
- Figure 77: Type of institution where cash ISA is held, by socio economic group, gross annual household income, working status, household tenure, April 2008
- Figure 78: Type of institution where cash ISA is held, by TV region, technology users, newspaper readership, supermarket used, April 2008
