Published: April 1, 2015
“Like ice cream in an endless summer, ISAs have ceased to be a seasonal product.”
Imagine an endless summer. Long, hot, balmy days that link together like the daisy chains children make on sunny afternoons. Ice cream sellers would crave such a prospect. No longer would vans be garaged through winter, but instead children would nag parents to the electronic chime of Greensleeves all year round. And so it is with ISAs, the favoured savings vehicle of the UK. Like ice cream in an endless summer, ISAs have ceased to be a seasonal product.
As my colleague, Tom Yazdi, rightly pointed out in his blog here last week: this year, there is no media clamour, no fevered dash to tuck money away before the tax year deadline that we have for so long associated with ISAs. Tom’s point was that the limelight has been stolen by the incoming pension freedoms. There is definitely merit in this. However, I think there is also something else, something more fundamental going on.
The reason that there was ever an ISA season, is that, historically, people have needed to squirrel modest sums away; to keep relatively small amounts of annual savings tax free and to be ready to save anew in the following tax year. There was a sense of scarcity, both in the limited amounts that could be saved and the finite time in which it could be deposited. Scarcity was the element that drove people to act just before tax deadline – they were going to miss out on an opportunity.
In two consecutive Budgets George Osborne has changed the weather. His 2014 Budget increased individual ISA allowances to £15k, and for the first time allowed people to keep all their savings in cash, shares, or a mix of both. In this year’s Budget the Chancellor stated that people won’t be taxed on their first £1,000 of income derived from savings. To take advantage of all this tax free saving is well beyond around 95% of the UK population. Married couples can save over £30,000 a year tax free – there aren’t many families able to do that. For this reason the season is not as pronounced as before. Quite simply, most people can’t take full advantage of the tax year they’re in. And if they miss this year then, hey there’s lots of capacity in next year’s tax free savings. There’s no rush. There’s no scarcity.
For savers this is clearly good news. The majority of savings and investments will happen in a tax free environment. For those that sell ISA accounts and investment products the world has changed. Marketing and communications need no longer focus such intensity on the ISA season. Ultimately people will, Government hopes, save more, given the incentives. However they’re likely to do so at a time that suits them rather than be driven by a deadline. This means we need to understand the new rhythms of the saver, to understand their behaviour and what prompts their actions. It is here that the opportunity lies; understanding the new triggers for investors and communicate accordingly. If ISAs are to have their own endless summer the popular savings vehicle might just need to play a different tune.
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