Last week, my colleague Dom House speculated upon the outcome of the Budget and the challenges facing the Chancellor as we come out of a pandemic and begin to grow the economy. You can read Dom’s thoughts here and judge for yourself whether it ultimately ended up being a budget that did begin to revert back to austerity and if the policy announcements were aligned to those motives. While we saw the temporary end of the triple lock due to an unaffordability risk of pensioners benefiting from an 8% rise in their state pension, the new ‘double lock’ will see a 3.1% increase in payments in 2022. In essence, a £5.55 rise rather than a £14 one. Still, a reduction in beer and wine duty, as well as taxes on fuel being frozen, may make that change more palatable.
Otherwise, the pension headlines and indeed those headlines across all Investments and retirement products were relatively muted. We’ve now not seen an increase in the ISA subscriptions limit since 2017, when it rose to £20,000, an almost 33% increase in the amount you could save into an investment (or cash) account without paying any tax on growth. Junior ISA limits were increased back in 2020, but they remain unchanged this time around as well. We can expect there to be increasing pressure on the housing markets in the coming years as the bank of Mum and Dad becomes increasingly stretched as they support their children in saving for and putting deposits down for a first time buyers mortgage. The ISA vehicle (ISA or JISA), particularly during childhood and for Generation Z and Millennials is a great solution for those looking to save (and achieve growth) for their deposit (or for that round the world trip), especially when getting a foot on the property ladder or exploring the world is the immediate priority, rather than the forlorn, hopeful pension that they’ll crave in later life – which is at least partially satisfied by workplace pension contributions anyway. (On a sidenote, at least for the employer, rises in contributions were not tabled in this years budget, much to the relief of many businesses who have struggled with the effects of the pandemic over the past 18 months).
There is method in the ISA limits not being increased however. Back in June 2021 the latest set of statistics showed that the average amount subscribed into a Stocks and Shares ISA was just £8,875 (based on provisional estimates for 2019/20). This was its lowest figure since 2016/17. Cash ISA subscriptions had also fallen in comparison with the previous two years as well. If the average value of subscriptions is less than half of the annual tax free subscription limit (and falling), is that a reflection of the popularity of the scheme, the lack of dispensable ‘additional’ income available to savers or something else – perhaps returns are simply not as attractive as they are from higher risk schemes (e.g. Crypto) where growth can be exponential (but then so can losses….)? Yet with over 75% of ISA savers sitting in ISA Cash Accounts rather than Stocks and Shares accounts, those limited returns can hardly be a surprise. Plus that trend continues; cash ISAs secured £4.8bn of additional inflows from adults in 2019/20 (possibly due to lockdown giving people income they didn’t spend), vs just £1.6bn into Stocks and Shares ISAs. Cash and the sanctuary of safe deposits and minimal returns it would appear remains king. Is this symptomatic of the challenges associated with the advice gap? Many people still deferring to cash rather than looking for more returns from their investments due to a significant proportion not seeking advice from a professional?
There is little to encourage a Chancellor to look at offering greater tax free benefits via the ISA product if ultimately the majority of savers aren’t utilising the headroom they already have or if they are sitting in investment vehicles that deliver limited returns. Pensions continue to steal the limelight; but when is the issue of saving, investing and growing capital really going to become a key focus area for this Government, in order to reduce the long term dependency on a state or personal pension at retirement?
What do you think? How do you think ISA subscription limits will change in the coming years? Are ISAs still a great way to save and invest tax free? If so, why aren’t more people using them?