The ISA comes of age in April, reaching its 18th birthday, with plenty of reasons to celebrate and many happy returns for customers who have invested in the tax-free savings and investment accounts, according to analysis by Prudential.
In the first year – the 1999/2000 tax year – 5.9 million individuals invested in Cash and Stocks & Shares ISAs – roughly 13 per cent of the UK’s adult population.
That grew to 12.7 million new Cash and Stocks & Shares ISA subscriptions in 2015/16, equating to a quarter of adults making the most of the government’s tax-efficient savings vehicle.
Prudential’s analysis reveals that had any of the 4.6 million savers who took out a Cash ISA in April 1999 invested the maximum amount every year and based on average interest rates over the period, they would now be sitting on a return of nearly GBP16,750 – a 22 per cent pay out on a total investment of GBP77,220 over the course of the past 18 years.
The average subscription per account, across all types of ISA, has risen over the past 18 years, more than doubling from just over GBP3,000 in 1999/2000 to GBP6,338 in 2015/16. This rise has been fuelled by a steady growth in subscriptions in Cash ISAs, which grew by 131 per cent from GBP2,520 in 1999/2000 to GBP5,810 last year as investors sought to take advantage of the rising ISA investment limit, which now stands at GBP15,240 (and is set to grow to GBP20,000 in April 2017).
Russell Warwick, direct to consumer director at Prudential UK, says: “The ISA has come a long way since its launch in 1999, with its tax-efficient model helping it become the backbone of millions of Britons’ personal investments.
“With over two fifths of UK adults currently subscribing to an ISA, the ISA market has now grown to be worth over GBP470 billion, with further growth anticipated as the ISA allowance continues to rise.
“ISAs can play an important part in retirement planning alongside pensions; and, in addition to the tax advantages, offer investors flexible access to their savings. We fully expect these popular tax-free savings and investment accounts to be equally successful in the 18 years to come.
“Cash ISAs can offer a steady, if unspectacular, stream of income but with interest rates remaining at all time low levels we are increasingly finding that even cautious investors are looking to broaden their potential returns through lower risk stocks & shares ISAs. The Prudential ISA offers investors a unique multi-asset fund range that provides growth potential with a transparent smoothing process that removes some of the extremes of market volatility.”
On a regional basis, the South West is the ISA capital of the UK in terms of the share of the region’s adults investing in an ISA, with its 2.17 million investors representing half of the total population in the area. At the other end of the table, the 419,000 adults in Northern Ireland investing in an ISA represent less than a third of the country’s adult population, making it the most under-subscribed region in the UK.
When looking at the average value of an ISA, the South East tops the table, with savers sitting on an average of GBP25,287. This is followed by London, GBP23,185, and the South West, GBP22,985. Again, Northern Ireland props up the table, with an average ISA value of GBP17,582 – over GBP4,000, or nearly 20 per cent, lower than the UK average of GBP21,647.
Prudential’s analysis also shows that young investors are least likely to take advantage of tax-efficient savings, with only 16 per cent of 16-24 year olds investing in an ISA. This figure rises gradually as people get older, with 32 per cent of 25-34 year olds holding an ISA, compared to 39 per cent of 35-44 year olds and 55 per cent of 55-64 year olds and those aged over 65.
While the difference between male and female ISA subscriptions is small, the analysis reveals that the average size of a man’s ISA is GBP22,933 – more than GBP2,500 larger than that of a woman, GBP20,417.
These findings are revealed as Prudential announced the launch of its first “direct to customer” ISA for the 2017/18 tax year following the popularity of its financial adviser-distributed tax-efficient savings product, which has attracted more than GBP1,812 million since its launch in 2015/163.
With the ISA annual allowance reaching GBP15,240 and the Bank of England base rate at an all-time low of 0.25 per cent, the Prudential ISA offers investors the potential for higher investment returns over the medium to long term. The Prudential ISA is a Stocks & Shares ISA and gives investors access to Prudential’s multi-asset risk-managed PruFund investment range.