Official statistics on ISAs for the year 2017-18 have just been published.
They reveal that:
- Around 10.8 million Adult ISA accounts were subscribed to in 2017-18, down from 11.1 million subscribed to in 2016-17.
- The number of cash ISAs subscribed to fell by 697,000 and the number subscribing to stocks and shares ISAs rose by 246,000.
- Around £69 billion was subscribed to Adult ISAs in 2017-18, an increase of £7.8 billion compared to 2016-17. This increase is driven by the rise in stocks and shares ISA subscriptions. The average subscriptions in 2017-18 were £6,409, a 15% increase on 2016-17.
- At the end of 2017-18, the market value of Adult ISA holdings stood at £608 billion. This represents a 4% increase compared to the value at the end of 2016-17. This is driven by an increase in the market value of funds held in stocks and shares, which increased by 7% compared to the year before.
Lucy Brennan, a partner at Saffery Champness, commented:
“It is perhaps surprising that ISAs continue to fall from their 2011 peak, as there are so many benefits of saving into an ISA.
“One reason for this could be some of the additional allowances the government has introduced in the last couple of years, including the dividend allowance and the personal savings allowance, which have helped to broaden the range of options for savers. The interest allowance or personal savings allowance, introduced in April 2016 and allowing basic rate taxpayers to earn up to £1,000 in savings income tax free, may well have turned people’s heads from the long-term benefits of ISAs. What people sometimes forget is that once the allowance is used up, they start paying tax, whereas in an ISA that just does not happen.
“With the dividend allowance being cut to £2,000 in April 2018 we might expect to see ISAs becoming more important for investors, who have dividends in excess of the allowance, trying to mitigate their tax exposure.
“While the total number of accounts has fallen from the 2011 peak, the amount of savings within ISAs has stayed broadly high, with a slight recovery in 2017-18 against what looks like an anomalous drop in 2016-17. This recovery, amounting to almost £8 billion in savings, has largely been driven by a significant uptick in stocks and shares ISA subscription.
“These products, of course, carry more risk, despite the tax shielding, but continue to be an attractive option, particularly for those who are feeling the pinch of long-term low interest rates and are prepared to take on the risks of the stock market to compensate. Whether the small interest rate rise we’ve seen in the past couple of weeks is the start of a long-term trend which reverses the spin towards greater risk appetite remains to be seen.
“Looking ahead, despite recent calls for a revamp of savings and investment, including the Lifetime ISA being scrapped, any significant changes look unlikely at present. Many expected further ISA reform in budgets over the last few years, including raising the annual allowance, which would fit in with the government’s aim to encourage savers to have diverse portfolios rather than simply relying on pensions to fund retirement.
“The Lifetime ISA and Help to Buy Isa are part of this drive. More broadly, ISAs overall remain a tax efficient system for both government and savers, and with the government’s hands full enough with Brexit there’s not likely to be the appetite to tinker too much in such uncertain times. However, we can never say never – Chancellors have surprised us all before.”