Increased flexibility and new tax-free allowances will encourage savers and investors to put more money away, but could lead to a rise in the levels of risk they take on investments, according to the Yorkshire Building Society.
A national survey amongst 1,020 people found that 42 per cent will start or increase saving when new Isa flexibility rules come into effect in the autumn.
In March this year, the chancellor announced that from autumn, Isa savers will be able to take money out of their Isas and put it back in, without losing their tax-free entitlement.
YBS found that 47 per cent will start or increase saving when basic-rate taxpayers will be allowed to earn £1,000 tax-free on savings and higher rate taxpayers to earn £500 from next April.
However, around 10 per cent of savers - equivalent to 1.8m people - said that they will definitely take more risk, while 40 per cent said they will look at more risky investments depending on circumstances.
This includes investing in peer-to-peer, with separate research conducted on behalf of the building society among a sample of 1,541 highlighted a lack of understanding of it. Only 42 per cent of people claim to be familiar with the term, and of those 60 per cent were unaware that it had no protection under the Financial Services Compensation Scheme.
The study also showed that attitudes to returns are a guide to the potential issues ahead - its survey among savers and investors found on average they are targeting annual returns on savings and investments of 5.3 per cent, despite historically low interest rates and recent stock market volatility.
Elsewhere, more than a third were targeting an annual return of 6 per cent over at least five years, with one in eight believing 8 per cent or more is achievable without taking into account any need to have access to their cash or potential losses of capital.
Andy Caton, executive director at YBS, said that providers need to match the government’s ambition to encourage responsible saving and investing, as there is a genuine threat that enthusiasm will be damaged if people are exposed to unnecessary risks they do not understand.
“Clearly there is evidence from the research that some have unrealistic expectations on the levels of returns they can achieve over the long-term with some people believing 8 per cent a year or more is realistic.
“Advice will be crucial in helping achieve success for the launch of new savings rules and we would urge anyone considering riskier investments such as P2P or equity-based investment to take independent financial advice before doing so.”
ruth.gillbe@ft.com
