ISAs - UK - September 2015

INTRODUCTION
Market definitions
Abbreviations
EXECUTIVE SUMMARY
The Market
Increased NISA limit significantly boosts market value
Figure 1: Number of ISAs and amounts subscribed 2008/09-2014/15
Value of both cash and stocks and shares ISA subscriptions expected to increase
Figure 2: Forecast of total adult cash ISA subscriptions, at current prices, 2009/10-2019/20
Figure 3: Forecast of total adult stocks and shares ISA subscriptions, 2009/10-2019/20
ISA market facing upheaval from government rule changes
Investment ISAs likely to appeal to retirees
Impact of first interest rate rise will be measured
Key Players
High-street banks dominate the cash ISA market…..
Figure 4: Main banking groups by proportion of cash ISA holders, February 2015
…..but investors rely on specialist providers
Figure 5: Top ten investment ISA providers, by ISA funds under management, June 2015
Help to Buy ISA could provide cross-selling opportunities
Goal-specific products hit the market
Attention shifts from new business to retention and loyalty
Online platforms that allow consumer engagement with investment strategy provide a way to stand out
The Consumer
ISAs are most likely to be cash, and are unlikely to be primary savings product
Figure 6: Ownership of specific ISA products, by overall ownership of ISAs, July 2015
Savings goals are primarily generic, which is problematic for motivation
Figure 7: Proportion of savers saving for specific reasons, July 2015
Figure 8: Value of ISA savings, by value of savings, July 2015
Planned uses for ISA savings drive bias towards cash products
Figure 9: Uses for ISA savings, July 2015
Help to Buy ISA likely to be popular but in a niche market
Figure 10: Awareness of ISA regulatory changes, July 2015
Consumer apathy means many miss the best deals
Figure 11: Attitudes towards ISAs and Savings, July 2015
Greater ISA flexibility to appeal to a minority of ISA savers
Figure 12: ISA Savings habits, July 2015
Focusing attention on investing opportunities could help ISAs stay competitive
Figure 13: Attitudes of current ISA savers towards ISA products, July 2015
What we think
ISSUES AND INSIGHTS
ISAs at risk of becoming out-competed by regular savings accounts
The facts
The implications
Goal-oriented ISAs have the potential to boost product uptake
The facts
The implications
Workplace ISAs could help encourage long-term saving
The facts
The implications
THE MARKET – WHAT YOU NEED TO KNOW
Increased NISA limit significantly boosts market value
Value of both cash and stocks and shares ISA subscriptions expected to increase
ISA market facing upheaval from government rule changes
Investment ISAs likely to appeal to retirees
Impacts of first interest rate rise will be measured
MARKET SIZE AND FORECAST
NISA limit increases ISA subscription value by almost 40%
Figure 14: Number of ISAs and amounts subscribed 2008/09-2014/15
Strong performance driven by popularity of cash ISAs
Figure 15: Number of ISAs and amounts subscribed, segmented by component type, 2008/09-2014/15
Higher earners take advantage of the higher subscription limit to push up average values
Figure 16: Average subscription per account, 2008/09-2014/15
Pension freedoms look set to boost investment trust ownership
Figure 17: Value of funds held in adult ISAs, by type of investment, 2012-15
Value of cash ISA market forecast to reach £82.7bn in the next five years
Figure 18: Forecast of total adult cash ISA subscriptions, at current prices, 2009/10-2019/20
Figure 19: Forecast of total adult cash ISA subscriptions, at current prices, 2009/10-2019/20
19% increase in stocks and shares ISA subscription value forecast
Figure 20: Forecast of total adult stocks and shares ISA subscriptions, 2009/10-2019/20
Figure 21: Forecast of total adult stocks and shares ISA subscriptions, 2009/10-2019/20
MARKET DRIVERS
Government budgets introduce large changes to the ISA market
Figure 22: Summary of changes made to ISAs in the Autumn 2014 statement and 2015 Spring and Summer Budgets and their potential impacts on the market
Pension Freedoms could boost the popularity of stocks and shares ISAs
Savings ratio nears record low
Figure 23: Annual savings ratio, Q1 2007-Q1 2015
FCA study concludes cash savings market not working for consumers
Low interest rates discourage saving
Figure 24: Average monthly quoted cash ISA variable rate and fixed rate, January 2011-July 2015
First interest rate rise on the horizon
Figure 25: Bank of England base rate and CPI – UK, January 2005-July 2015
CHANNELS TO MARKET
Researching and applying for accounts requires a multi-channel approach ….
…. but managing savings is an online-only affair for the majority of savers
Figure 26: Activities relating to savings, by channel preferences, February 2015
KEY PLAYERS – WHAT YOU NEED TO KNOW
High-street banks dominate the cash ISA market but investors rely on specialist providers
Help to Buy ISA could provide cross-selling opportunities
Goal-specific products hit the market
Attention shifts from new business to retention and loyalty
Online platforms that allow consumer engagement with investment strategy provide a way to stand out
MARKET SHARE
High street brands dominate cash ISA market …
…with Lloyds Banking Group particularly popular
Figure 27: ranking of the largest group providers of cash ISAs, by proportion of customers, February 2015
Investors rely on specialist providers
Figure 28: Top ten investment ISA providers, by ISA funds under management, June 2015
COMPETITIVE STRATEGIES
Help to Buy ISA could provide cross-selling opportunities
Goal-specific products hit the market
Nationwide helps consumers get on the property ladder
Aegon supports retirees
HSBC and Santander focus on loyal customers
Incumbents aim to make saving simpler
Nationwide and Lloyds Banking Group focus on products….
….while HSBC streamlines process
Online platforms encourage greater consumer involvement
ADVERTISING SPEND
Cash ISAs remain low priority for above-the-line advertising budgets
Figure 29: Total recorded above-the-line, online display and direct mail advertising spend on ISAs, by component type, 2010/11-2014/15
Traditional advertising of cash ISAs dominated by building societies
Figure 30: Top ten recorded above-the-line, online display and direct mail advertisers of cash ISAs, 2010-15
Top ten stocks and shares ISA advertisers increase spend by over a third
Figure 31: Top ten recorded above-the-line, online display and direct mail advertisers of stocks and shares ISAs*, 2010-15
ISA providers compete to top list of search results
A note on adspend
THE CONSUMER – WHAT YOU NEED TO KNOW
ISAs are most likely to be cash and are unlikely to be the primary savings product
Savings goals are primarily generic, which is problematic for motivation
Planned uses for ISA savings drive bias towards cash products
Help to Buy ISA likely to be popular, but within a niche market
Awareness and understanding of budget changes to personal savings market is limited
Consumer apathy to shopping around
Greater ISA flexibility to appeal to a minority of ISA savers
ISAs could play a bigger role in retirement planning
SAVINGS PRODUCT OWNERSHIP
80% of consumers own at least one savings or investment product
Figure 32: Ownership of savings products, July 2015
Over half of all savers have an ISA
Figure 33: Ownership of ISA and pension products, by ownership of any savings products, July 2015
Cash ISAs account for 88% of all ISAs owned
Figure 34: Ownership of specific ISA products, by overall ownership of ISAs, July 2015
27% rely on one savings product…
Figure 35: Number of different savings and investments= products owned by savers, July 2015
….but this is unlikely to be an ISA
Figure 36: Ownership of ISAs, by number of savings products owned, July 2015
GENERAL MOTIVATIONS FOR SAVING
Security remains the main motivation for saving
Figure 37: Proportion of savers saving for specific reasons, July 2015
The need to cultivate a long-term savings habit
Figure 38: Consumer savings priorities, July 2015
… but homeownership provides a fall back for many
Bigger goals require more detailed planning
Figure 39: Proportion of savers saving for retirement, by number of savings and/or investment products owned, July 2015
VALUE OF ISA SAVINGS
Stocks and shares ISAs hold higher values of savings
Figure 40: Value of ISA savings, by value of savings, July 2015
Young professionals could be encouraged to invest
Figure 41: Value of ISA savings, by annual household income, July 2015
Value is concentrated among higher earners
PLANNED USE OF ISA SAVINGS
ISAs provide a safety net for the short term and long term
Figure 42: Uses for ISA savings, July 2015
Market for Help to Buy ISA will be niche ….
Figure 43: Planned uses for ISA savings, by those currently renting their home, July 2015
An ISA for life?
Retirement plans drive up value of savings
Figure 44: Value of ISA savings, by top three uses of ISA savings, July 2015
ISA SWITCHING/NEW ACCOUNT OPENING
A third of cash ISA owners have switched or opened a new account in the last 12 months
Figure 45: Recent history of ISA switching and new account opening, July 2015
AWARENESS OF BUDGET CHANGES TO ISAS
38% unaware of changes to savings regulations
Figure 46: Awareness of ISA regulatory changes, July 2015
ISA SAVINGS HABITS
Majority of ISA owners missing out on potential deals
Figure 47: ISA Savings habits, July 2015
ISAs predominantly used for long-term savings
Figure 48: Planned uses of ISA savings, by ISA savings habits, July 2015
Young savers want flexibility
Goal-oriented ISAs could create a more competitive market
Figure 49: Agreement with the statement “I regularly review the market to identify the best deals,” by whether or not consumers have an identified use for their ISA savings, July 2015
ATTITUDES TOWARDS ISAS AND SAVINGS
ISAs perceived as complex
Figure 50: Attitudes towards ISAs and Savings, July 2015
Prove the value to maintain relevance
Low interest rates and returning confidence lessen the motivation to save
Complexity damages consumer outcomes
Figure 51: Proportion of ISA savers who have switched accounts or opened a new account within the last 12 months, by attitudes towards ISAs and savings, July 2015
ATTITUDES TOWARDS ISA PRODUCTS
Increasing the range of products could help ISAs stay relevant in a tax-free savings environment
Figure 52: Attitudes of current ISA savers towards ISA products, July 2015
Boost retirement savings with a workplace ISA
APPENDIX
Best and worst case forecasts for cash ISA subscription value
Figure 53: Best and worst case forecasts for total adult cash ISA subscriptions, at current prices, 2014/15-2019/20
Best and worst case forecasts for stocks and shares ISA subscription value
Figure 54: Best and worst case forecasts for total adult stocks and shares ISA subscriptions, at current prices, 2014/15-2019/20
Cash ISA volume forecast
Figure 55: Market forecast for number of adult cash ISA subscriptions, 2009/10-2019/20
Figure 56: Market forecast for number of adult cash ISA subscriptions, 2009/10-2019/20
Figure 57: Best and worst case forecasts for total number of adult cash ISA subscriptions, 2014/15-2019/20
Stocks and Shares ISA volume Forecast
Figure 58: Market forecast for number of adult stocks and shares ISA subscriptions, 2009/10-2019/20
Figure 59: Market forecast for number of adult stocks and shares ISA subscriptions, 2009/10-2019/20
Figure 60: Best and worst case forecasts for number of adult stocks and shares ISA subscriptions 2014/15-2019/20