The finance industry has long lobbied European governments for greater tax incentives to promote long-term savings, often in vain. Now latest statistics from the UK’s Investment Management Association (IMA) show the profound effect tax incentives can have on people’s propensity to save.
On 6 October 2009, the maximum subscription limit for the UK’s Individual Savings Account (ISA), a tax-free savings product, was raised, from £7,200 to £10,200 for the over-50s, with the increased limit being made available to all savers on 6 April 2010. Since then sales of ISAs, which can be invested in cash, stocks and share or funds, have reached record levels.
Net ISA sales in October 2009 were the highest for any October since ISAs were first launched in 1999, and since then gross ISA sales have averaged over £400 million a month, more than double the figure for a year earlier, before the increase in the allowance. There was also an increase in April 2010, when the ISA allowance went up for the under 50s, with net sales that month the highest since 2001.
Research conducted by the IMA also shows that nearly half (47%) of all ISA savers would commit more money to ISAs if the annual allowance were raised further.
“Our research shows that people are positive about incentives to save – with around half of existing investors saying they would invest more if the annual ISA allowance were raised,” said Richard Saunders, chief executive of the IMA.
He added: “The IMA’s figures back this up, with ISA sales at the highest level for many years, following the recent increases in the annual allowance. The inflows we have seen since October last year are the highest since ISAs were first launched. There is a good chance that 2010 could be the best year ever for ISAs.”
The IMA’s research also shows some support for greater flexibility. ISAs, which benefit from a clear charging structure, are used by some savers instead of or in addition to pension funds for pensions savings. One in five (21%) of those responding to the IMA’s research said they would invest more if there was some flexibility to move money in and out of pensions savings.
Security in the form of guaranteed incentives was also on investors’ wish list. One in three said they would invest more if long-term savings incentives remained consistent, with 44% saying they would invest more if there were a lifetime tax-free ISA allowance.
Fiona Rintoul, editorial director
©2010 funds europe
