- Nearly 4 million subscribers paid into stocks and shares ISAs as investing popularity surged 10%
- Total stocks and shares ISA savings near half a trillion pounds
- Cash ISA popularity slumped to near record lows before rate hikes sparked savings war
- Government takes £47m in withdrawal charges from savers forced to access LISA accounts early
- Parents turn to investments for children, with 58p in every £1 going into stocks and shares JISA accounts
- Nearly £1bn sits unclaimed in matured CTFs
Laura Suter, head of personal finance at AJ Bell, comments:
“The tail end of the pandemic investment boom took the use of stocks and shares ISAs to their highest level ever in 2021-22, with 3.9m people subscribing to the accounts, a 10% increase on the previous year. Not only were a record number of people putting money in their ISA, they also put a record amount of money in the tax-free accounts, with £34bn subscribed. It means that during the pandemic, a total of £68bn was paid into adult investment ISAs, as the nation’s savings soared and investments became more popular. On top of that, the soaring stock market at the time meant that the total amount in stocks and shares ISAs rose to almost £500bn – a 14% increase on the previous year.
Source: AJ Bell/HMRC
“However, cash ISA use hit near rock bottom levels. Anyone looking back with hindsight may now be regretting not using their ISA allowance while they had the chance, as rising interest rates and frozen tax bands now mean many are being hit with tax on their savings. But 2021-22 saw the second-lowest number of cash ISA subscribers ever, with the number of savers down by 920,000 on the previous year, falling to just 7.1 million people. At the start of the 2021-22 tax year the top easy-access cash account paid just 0.5%*, meaning the majority of people were miles from hitting their Personal Savings Allowance. Even by the end of that tax year the top easy-access savings rate had only reached 1.5%*, so a basic-rate taxpayer would have needed £67,000 in savings before they hit their tax-free limit. Clearly in the most recent tax year we will have seen a rush to cash ISAs as savers tried to protect themselves from a tax hit.”
Lifetime ISAs – government takes £47m in withdrawal penalties
“Another 56,100 people used a Lifetime ISA to buy their first property in 2022-23, the highest figure yet. It means 171,000 people have made use of the government bonus to boost their deposit savings and get on the property ladder since the Lifetime ISA was launched in 2017.
“But on the flip side of that success, the figures reveal the government took £47m of savers’ money in early withdrawal charges in 2022-23, as people dipped into their Lifetime ISA funds and faced the 25% exit penalty. In total, since Lifetime ISAs were launched, the government has now pocketed £127m of saver money in withdrawal charges. There was a 56% increase in the number of people making a chargeable withdrawal and the government took an additional £16m in withdrawal charges compared to the previous year.
“The cost of living crisis has put huge pressure on people’s finances, meaning many young savers who intended for their LISA money to be used for a house deposit have been forced to dip into the pot to afford rent and bills. The government cut the exit penalty during the pandemic, and it should do the same in the cost of living crisis, so it’s not profiting from people being pushed to use their long-term savings because of massive rises in fuel, rent and food prices."
Junior ISAs – 58p in every £1 goes into stocks and shares
“The investing boom carried over into Junior ISAs (JISAs), with more parents choosing to invest for their children rather than just stick it in cash. Cash JISAs have continually been more popular, as parents either don’t want to take risk with their child’s savings or lack the confidence or time to invest. However, that finally appears to be changing. Parents are still more likely to open a cash Junior ISA account, with 60% of those paying into a JISA putting money in a cash account in 2021-22, but that’s a significant fall from the 70% seen the previous year. On top of that, far more money is being paid into investment JISAs, with 58p of every £1 paid into JISAs going into stocks and shares accounts. This represents a big shift from the 50:50 split we saw the previous year. This switch makes sense as children potentially have the longest savings horizon in which to ride out the ups and downs of the stock market to harvest higher returns.
“Unsurprisingly, few people are maxing out the generous £9,000 Junior ISA annual limit. On average parents and grandparents are putting away £1,229 per child each year. In 2021-22 there was a total of £9bn sitting in accounts for the nation’s children, an almost £2bn increase on the previous year thanks to buoyant stock markets and generous parents.”
Child Trust Funds – nearly £1bn unclaimed
“The failed experiment of Child Trust Funds (CTFs) continues to limp along, and the latest stats show that 45% of accounts that have matured have not yet been claimed – equating to 428,000 accounts and a massive £943m of money. On average there is £2,203 per account sitting waiting to be claimed. Frustratingly, many 18-year-olds aren’t aware the account even exists and even if you are aware, the process for claiming it is long and frustrating.
“On the plus side, greater publicity around CTFs since the first accounts matured mean that more people are transferring their CTF to JISAs, to benefit from the greater investment choice and often lower charges that JISAs offer.”
Profile of an ISA investor
“The average person contributing to an ISA earns between £20,000 and £29,999 and has total ISA savings of £29,387 – showing that ISAs are for the average person on the street, not just the wealthy. Those between the age of 25 and 34-years-old are most likely to pay into an ISA, as they have climbed the career ladder, and typically have high disposable income, but don’t yet have the costs of children or other dependents to pay for.
“Understandably, those on high incomes are far more likely to contribute the full £20,000 allowance each year, with 60% of those earning £150,000 or more putting the full whack into the tax-free accounts. Strangely though, that means four in 10 of the biggest earners aren’t maxing out their ISA allowance each year. For some this will be because they are the sole earner and so don’t have sufficient spare disposable income, while others may simply be forgetting to maximise their tax-free savings.
“On the other end of the spectrum, many are paying more into an ISA than they earn each year. For example, 72,000 people with incomes of less than £5,000 paid the full £20,000 into their ISA in 2021-22. This indicates that families are being savvy with their allowances, with higher earners transferring savings to a lower-earning spouse to use up their ISA limit, while others may just be transferring non-ISA savings into an ISA.
“Women are slightly more likely to pay into an ISA, accounting for around 52% of all ISA subscriptions. However, they are sticking to cash rather than investing, when compared to male savers. In total 59% of men paying into an ISA will put it in cash, compared to 74% of women. There are various reasons for this gender divide, from women feeling less confident investing to having lower disposable income they want to take risk with, but the decision to stick to cash is hampering women’s long-term wealth, as they don’t benefit from the higher returns of investments over their lifetime.”
*According to Moneyfacts.
