In Q2 2020, the household savings ratio skyrocketed to an all-time high of 29.1% of disposable incomes. This compares to an average of just 7.2% for the previous five years.

Despite the unprecedented threat to jobs and the economy, the vast majority of people have seen their outgoings reduce dramatically since the crisis began as opportunities to spend have been severely restricted. However, the impact of the outbreak on savings is being felt very differently across demographic groups. Those who are already in a relatively healthy financial position are more likely to say they are adding to their savings.

‘Accidental savers’, with reduced expenditure due to lockdowns and ongoing restrictions, have not necessarily put saved money into savings accounts or specific individual savings account (ISA) products. A lot of this money has remained parked within easy reach in current accounts. Looking forward, ultra-low interest rates will continue to hinder the appeal of dedicated savings accounts, while the tax-related benefits of ISAs have been negated for the vast majority of savers since the introduction of the Personal Savings Allowance in 2016.

However, the ‘ISA habit’ has endured among existing holders, which hints at the importance of attracting new and young savers to the product. The looming prospect of major tax or even pensions reforms to stabilise public finances can provide a renewed focus on the tax efficiency of ISAs. Similarly, the Lifetime ISA (LISA), despite a difficult start, has the potential to become a popular product during the recovery phase as the government strives to support first-time buyers and people saving for retirement.

Key issues covered in this Report

  • The impact of COVID-19 on the ISA market in the UK.

  • Recent and expected savings activity, including likely ISA actions and behaviours.

  • Reasons for not owning an ISA, interest in different types and likelihood to open one.

  • Perceptions of different types of providers.

  • Opportunities and threats arising from COVID-19.

COVID-19: Market context

The first COVID-19 cases were confirmed in the UK at the end of January, with a small number of cases in February. As the case level rose, the government ordered the closure of non-essential stores on 20 March. 

A wider lockdown requiring people to stay at home except for essential shopping, exercise and work ‘if absolutely necessary’ followed on 23 March. It wasn't until 15 June that non-essential stores were allowed to re-open, followed by pubs, restaurants, hotels and hairdressers on 4 July, and many beauty businesses on 13 July.

By September, it had become clear that the UK was at the start of a second wave, and social distancing measures were intensified. Continued increases in infection numbers led to Wales implementing a two-week national lockdown from 19 October, England announcing a full month-long lockdown from 5 November, and Scotland introducing a new five-level system of coronavirus restrictions. 

If case numbers remain high, it can be expected that the lockdown will be extended in England, but even if the second national lockdown does end as planned on 2 December, the current plan is to return to the regional tiered approach that was in force before the lockdown, meaning that large parts of the country may still effectively be locked down.

Economic and other assumptions

Mintel’s economic assumptions are based on the Office for Budget Responsibility’s central scenario included in its November 2020 Fiscal Sustainability Report. The scenario suggests that UK GDP will have fallen by 11.3% in 2020, recovering by 5.5% in 2021, and 6.6% in 2022. GDP isn’t expected to return to pre-COVID levels until the fourth quarter of 2022. The central scenario has unemployment peaking at 7.5% in Q2 2021.

The current uncertainty means that there is wide variation on the range of forecasts, however, and this is reflected in the OBR’s own scenarios. In its upside scenario, economic activity returns to pre-COVID-19 levels by Q4 2021. Its more negative scenario, by contrast, would mean that GDP doesn’t recover until Q3 2024.

From the start of the outbreak, we have made the assumption that an effective vaccine would not be widely available until well into 2021. On 9 November, Pfizer and BioNTech announced highly encouraging results from trials of their vaccine, followed by similarly positive results from Moderna and Oxford University/AstraZeneca. This means that a vaccination programme may be brought forward, but a full rollout will take many months, meaning that Mintel is still making the assumption that we will be living with COVID for some time to come.

Products covered in this Report

For the purposes of this Report, Mintel has used the following definitions:

  • Individual savings accounts (ISAs) are a tax-free ‘wrapper’ that can hold a range of investments and cash, and are exempt from income and capital gains tax. ISAs have an annual subscription limit, which means savers can only invest up to a specified amount each year. Up to £20,000 can be invested into an ISA in the current tax year (2018-19). The subscription limit applies to funds held across all different types of ISAs, however, money can be moved from stocks and shares to cash ISAs, and vice versa.

The ISA wrapper applies to both cash savings and stocks and shares investments:

  • Cash ISAs are cash savings products. There are many varieties of cash ISA. Some will offer instant access to money with no penalty, while 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.

  • Stocks and shares ISAs allow individuals to invest in a wide range of investments, including unit trusts, Open-Ended Investment Companies (OEICs), ETFs, investment trusts and corporate and government bonds. They can also wrap individual stocks and shares listed on a recognised stock exchange in a self-select ISA. Investments held in an ISA are exempt from capital gains tax, while dividends attract lower tax than on shares held outside an ISA.

A number of goal-specific and alternative investment ISA products have recently been introduced:

  • Innovative finance ISAs (IFISAs) offer savers a tax-free wrapper for any savings income earned from peer-to-peer investments. As of 1 November, 2016, the IFISA also includes earnings from crowd bonds. Investments made using an IFISA count towards an individual’s annual subscription limit.

  • Lifetime ISAs (LISAs) are designed to facilitate saving for a deposit on a first home and for retirement. They became available to savers in April 2017. LISAs are set to replace the Help to Buy ISA, giving savers the same 25% government bonus on contributions. The ISA will only be available to 18-39 year olds. However, people can save in their LISA and receive the 25% bonus until their 50th birthday. People can freely access the funds in their ISA after their 60th birthday, to help fund retirement, however, withdrawals are permitted before this to use as a deposit on a first home.

  • Help to Buy ISAs (H2B ISAs) are a form of cash ISA specifically available for the purpose of saving towards a deposit on a first home. Savers qualify for a government bonus of 25% on all contributions to the ISA. Contributions count towards an individual’s overall ISA subscription limit. The scheme closed to new accounts on 30 November, 2019, however, contributions will be accepted until 30 November, 2029, and the government bonus can be claimed until 1 December, 2030.

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